ACT202 Iced Coffee - Grade: A PDF

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ContentsLetter of Submission29th April, 2019Lecturer: Tariqul HoqueDepartment of Finance and AccountingNorth South University;Bashundhara, Dhaka-1229, Bangladesh.Dear Sir,Here is the project report that you assigned us to submit which was based on determining the cost of a product and variance analy...

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Contents Letter of Submission........................................................................................................................3 Executive summary.........................................................................................................................4 Product details.................................................................................................................................4 Production Process...........................................................................................................................5 Cost Of The Product........................................................................................................................6 Price and Profit Margin....................................................................................................................9 Contribution and Break Even Point...............................................................................................10

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Letter of Submission 29th April, 2019 Lecturer: Tariqul Hoque Department of Finance and Accounting North South University; Bashundhara, Dhaka-1229, Bangladesh. Dear Sir, Here is the project report that you assigned us to submit which was based on determining the cost of a product and variance analysis. Under your direct supervision this report and the investigation for it was prepared. We pledge that no part of it will be shared with anyone else under any situation, or uploaded to any Internet website without your consent. Moreover, we pledge that this report has not been submitted to any other faculty member of North South University. First and foremost, we would like to thank Almighty for giving us the knowledge, ability and opportunity to undertake this research study. We would also like to thank our family for always being the biggest source of our strength. For further assistance, we accessed the lecture slides, managerial accounting book, and most importantly lecture classes. We also took an interview of a coffee seller of Coffee Lime and came to understand many details in preparing this report. Finally, special thanks go to our teacher, Mr. Tariqul Hoque, who has guided us throughout the whole process and without whom this would not have been possible. He has been providing his guidance and heartfelt support at all times. We shall eternally be grateful for his assistance in this project report and for always being cooperative, kind and understanding in all of our trying times. Thank you, Sir. Sincerely,

Name Tasnim Hossain Moyurica Amin

ID 1831660630 1831866630

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Executive summary

Iced coffee is a very popular drink in Bangladesh. It is a type of coffee beverage served chilled. It is a very refreshing drink and there is a high demand for it during summer time. Mazagran, a cold, sweetened coffee beverage that originated in Algeria during 1840, has been described as "the original iced coffee".It was prepared with coffee syrup and cold water. This report is about Coffee Lime, an iced coffee shop located in Uttara sector 7. It is owned by a man named Abdur Rahman. We have prepared a projected contribution format income statement for the year ended 2020. The company is expected to make a net operating income of BDT633, 828 with a contribution margin of BDT768,828. In this report we have also included details about the product, production process, and production cost.

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Product details Product Name: Iced Coffee Ingredients: 1. Sugar 2. Milk 3. Chocolate Powder 4. Coffee powder 5. Coffee Syrup 6. Ice 7. Straw 8. Disposable one-time cup Cost Per Coffee: 1. Chocolate Cold Coffee – BDT 27.6 Price per coffee: 1. Chocolate Cold Coffee – BDT 65 Coffee Lime serves a chill zestful cup of iced coffee. No pre stored coffee is sold as the coffee is served according to the demand of the customer. Target Customer: The iced coffee is targeted to be sold mainly to the people who hangs out in the fuchka shops in sector 7. Also it is for customers of any age who is looking for a refreshing quencher in an unfavorable tiring weather.

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Production Process All the ingredients for the coffee production are bought in bulk. Coffee lime has to buy all ingredients worth BDT 25,931in total worth producing 1,500 cups a month. The method to prepare it is incredibly simply, quick and budget friendly. All the ingredients listed above has to be combined with water and stirred until the sugar and coffee has dissolved. After letting it cool down completely, the coffee can be served over ice with the syrup to customers.

Cost of the Product Direct Materials/Variable Manufacturing Overhead No. of units No. of Unit Unit Cost Per

Cost Per

used per day

units used

Milk Sugar Chocolate

4,500 850 175

per cup 60 12 3

Powder Coffee Powder Coffee Syrup Ice Disposable Cup Straw Total

300 50 125 50 70

8 3 3 1 1

Items

Employees 1 Total

Price

Month

Product

ml gm gm

0.07 0.06 2.3

9,450 1,530 12,075

4.2 0.72 6.9

gm gm Cubes Cup Straw

0.16 0.52 0.05 0.2 0.08

1,440 780 188 300 168 25,931

1.28 1.56 0.15 0.2 0.08 15.09

Direct Labor/ Variable Manufacturing Overhead Units sold Unit Salary Cost Per Per Day 50

1

7,500

Month 7,500 7,500

Cost Per Product 5 5 5|Page

Detail

Fixed Manufacturing Overhead Units Sold Cost Per Day Cost Per

Cost Per

Cart

Per Day 50

50

Month 1,500

Product 1

Maintenance Rent Miscellaneou

50 50

250 75

7,500 2,250

5 1.5

11,250

7.5

s Total

Product

Direct Materials

Cost Per Product Direct Labor Manufacturing

Iced Coffee

15.09

5

Overhead 7.5

Total 27.6

Cost Per Product

Direct Material Direct Labor Manufacturing Overhead

Here while computing cost per product firstly the direct material is computed, on an average the total amount of iced coffee produced per day is 50 and the amount of total cup produced per 6|Page

month is 1,500cups. In the direct material schedule the details for all the ingredients, how much they are used for each cup, how much each unit costs are given in details and after computing the direct materials, the total amount of direct material cost per month is BDT 25,931 and the cost per product for direct materials is BDT 15.09. Then the direct labor is computed, Coffee Lime is a seld employed business and therefore his salary is BDT 7,500 per month which eventually adds a cost to each unit of product BDT 5. Then the fixed manufacturing overhead includes a regular daily fixed fee to the local authorities, cart expenses which includes electricity, maintenance of the cart and other miscellaneous expenses sums up to BDT 75 per day and apparently adds a cost to each unit of product BDT 7.5. All the total cost of direct materials, direct labor and fixed manufacturing overhead sums up to the actual cost of the product which is BDT 27.6.

Master Budget Sales Budget for the year:

Deta

Jan

Feb

Ma

97,50

97,5

97,5

97,5

97,5

97,5

97,5

0

00

00

00

00

00

00

ils Cas

97,5

97,50

rch 97,

h

00

0

500

April

May

June

July

Aug

Sept

Oct

Nov

Dec

Tota

97,5

97,5

l 1,17

00

00

0,00 0

Purchase Budget:

Detail

Jan

Feb

Mar

Apri

May

June

July

Aug

Sept

Oct

Nov

Dec

Tota

7|Page

s Milk

9,45

ch 9,45

l 9,45

9,45

9,45

9,45

9,45

9,45

9,45

9,45

9,45

l 113,

9,45

Sugar

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

0 1,53

400 18,3

Choc

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

0 12,0

60 144,

olate

75

75

75

75

75

75

75

75

75

75

75

75

900

er Coffe

1,44

1,44

1,44

1,44

1,44

1,44

1,44

1,44

1,44

1,44

1,44

1,44

17,2

e

0

0

0

0

0

0

0

0

0

0

0

0

80

780

780

780

780

780

780

780

780

780

780

780

780

9,36

Powd

Powd er 0

Coffe e Syrup 300

300

300

300

300

300

300

300

300

300

300

300

3,60

168

168

168

168

168

168

168

168

168

168

168

168

0 2,01

Cup

6

Straw

Cash Budget Details

Jan

Feb

April

May

June

July

Aug

Sept

Oct

Nov

Dec

Total

6859 5

Marc h 1274 5

Begin ning Cash balan ce Cash collect ions Total

0

1960 5

2614 0

3299 9

3953 4

4639 4

5325 7

6664 8

7789 0

8318 3

0

97,50 97,50 0 0

97,50 0

97,50 0

97,50 0

97,50 0

97,50 0

97,50 0

97,50 0

97,50 0

97,50 0

97,50 0

1,170 ,000

97,50 97,50 97,50 97,50 97,50 97,50 97,50 97,50 97,50 97,50 97,50 97,50 1,170 8|Page

Cash collect ions Total Purch ases Total opera tional expen ses table Surpl us

0

0

0

0

0

0

0

0

0

0

0

,000

25,74 25,74 3 3

25,74 3

25,74 3

25,74 3

25,74 3

25,74 3

25,74 3

25,74 3

25,74 3

25,74 3

25,74 3

308,9 16

18,75 18,75 0 0

18,75 0

18,75 0

18,75 0

18,75 0

18,75 0

18,75 0

18,75 0

18,75 0

18,75 0

18,75 0

225,0 00

53,00 53,00 7 7

53,00 7

53,00 7

53,00 7

53,00 7

53,00 7

53,00 7

53,00 7

53,00 7

53,00 7

53,00 7

6360 84

May

Jun

July

Aug

Sept

Oct

Nov

Dec

Tota

7,50

7,50

7,50

7,50

7,50

7,50

l 90,0

Selling and Administrative expenses table: Detail

Jan

Feb

Mar

Apri l 7,50

7,50

e 7,50

s Wage

7,50

7,50

ch 7,50

s Rent

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

0 7,50

00 90,0

Misce

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

0 2,25

00 27,0

llaneo

0

0

0

0

0

0

0

0

0

0

0

0

00

us Cart

1,50

1,50

1,50

1,50

1,50

1,50

1,50

1,50

1,50

1,50

1,50

1,50

18,0

0

0

0

0

0

0

0

0

0

0

0

0

00

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Coffee Lime Direct Materials Budget For the year ended December 31, 2020

Quarter 1

Quarter 2

Quarter 3

Quarter 4

150

150

150

150

15.09

15.09

15.09

15.09

2,265

2,265

2,265

2,265

350

300

250

350

2,615

2,565

2,515

2,615

(200)

(350)

(300)

(250)

2,415

2,215

2,215

2,365

27.6

27.6

27.6

27.6

Budged production units Direct materials per unit Total direct materials needed for production Add: Ending direct materials Total quantity needed Less: Beginning direct materials Quantity to purchase Cost per cup 10 | P a g e

Total cost of

66,654

61,134

61,134

65,274

direct material purchases

11 | P a g e

Coffee Lime Direct Labor Budget For the year ended December 31, 2020 Quarter 1

Quarter 2

Quarter 3

Quarter 4

150

150

150

150

5

5

5

5

750

750

750

750

30

30

30

30

22,500

22,500

22,500

22,500

Units to be produced Direct labor hours per unit Total direct labor hours needed Direct labor cost per hour Cost of labor

12 | P a g e

Coffee Lime Manufacturing Overhead For the year ended December 31,2020

Quarter 1

Quarter 2

Quarter 3

Quarter 4

Units to be produced Variable overhead costs

150

150

150

150

Materials labor Total variable costs Fixed overhead costs

2,265 22,500 24,765

2,265 22,500 24,765

2,265 22,500 24,765

2,265 22,500 24,765

Cart

4,500

4,500

4,500

4,500

750 225 5,475 30,240

750 225 5,475 30,240

750 225 5,475 30,240

750 225 5,475 30,240

Maintenance Rent Miscellaneous

Total fixed costs Total overhead costs

Price and Profit Margin Price of the products: Regular Cold Coffee BDT 65 13 | P a g e

Computing net income,

For the month ended of January ,2020 Sales Revenue Iced Coffee Total Revenue Less: Variable Cost Direct Materials Direct Labor Total Cost Contribution Margin Less: Fixed Cost Fixed Manufacturing Overhead Net Operating Income

1,170,000 1,170,000 311,172 90,000 401,172 768,828 135,000 633,828

Therefore, Profit margin = (Net Operating Income/Sales) x100 = (BDT 633,828/ BDT 1,170,000) x 100 = 54.2%

Contribution and Break Even Point Total Sales Revenue

Total 1,170,000

Per Unit 65

CM Ratio 100%

Less: Variable Cost Of

401,172

20.09

65.7%

768,828

44.91

34.3%

Goods Sold Contribution Margin

14 | P a g e

Less: Fixed

135,000

Manufacturing Overhead Net Operating Income

633828

Computing Break even in BDT sales Profit = CM ratio x Sales – Fixed Expenses 0 = 34.3% x Sales – 135,000 Sales = 393,586 BDT Computing Break even in unit sales Unit Sales to breakeven = Fixed expense/ CM per unit Unit sales = BDT (135,000/ 44.91) Unit Sales = 3006 cups of coffee.

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