Tea Cvp Analysis

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Tea Cvp Analysis

  1. 1. FIRST ASSIGNMENT
  2. 2. <ul><li>INTRODUCTION </li></ul><ul><ul><li>Location : Bagh Amberpet </li></ul></ul><ul><ul><li>Business : Tea Shop </li></ul></ul><ul><ul><li>Total Cost </li></ul></ul><ul><ul><li>Total Sales </li></ul></ul><ul><ul><li>Break-Even Analysis </li></ul></ul><ul><ul><li>Effect on Break-Even Point with respect to changes in revenue and cost. </li></ul></ul>
  3. 3. <ul><li>TEA LEAVES </li></ul><ul><li>MILK </li></ul><ul><li>SUGAR </li></ul><ul><li>WATER </li></ul><ul><li>GAS </li></ul>
  4. 4. <ul><li>FIXED COST </li></ul><ul><li>Fixed costs are business expenses that are not dependent on the level of activities of the business </li></ul><ul><li>Ex : rent of shop, electricity, etc… </li></ul><ul><li>VARIABLE COST </li></ul><ul><li>Variable costs are business expenses that change in proportion to the level of activities of a business. </li></ul><ul><li>Ex : milk ,sugar, tea leaves. </li></ul>
  5. 5. <ul><li>He invested Rs.20,000 for Trolly. </li></ul><ul><li>He invested Rs.4,000 for gas cylinder, gas stove and glasses. </li></ul>
  6. 6. <ul><li>Cost of cylinder is Rs.840, which ends in 4 days. </li></ul><ul><li>Water is free of cost. </li></ul><ul><li>Cost is calculated on per day basis. </li></ul><ul><li>Depreciation is charged at 10% per annum on trolly and gas stove. </li></ul>
  7. 7. <ul><li>FIXED COST </li></ul><ul><li>Rent Rs.300 </li></ul><ul><li>Electricity Rs.15 </li></ul><ul><li>Gas Cylinder Rs.210 </li></ul><ul><li>Depreciation </li></ul><ul><ul><li>Trolly Rs.5.5 </li></ul></ul><ul><ul><li>Gas stove Rs.1 </li></ul></ul><ul><li>VARIABLE COST </li></ul><ul><li>Milk 20 litres @ </li></ul><ul><li>Rs.26 per litre = Rs.520 </li></ul><ul><li>Sugar 5 kg @ </li></ul><ul><li>Rs.26 per kg = Rs.130 </li></ul><ul><li>Tea leaves 0.5 kg @ </li></ul><ul><li>Rs.170 per kg = Rs.85 </li></ul>
  8. 8. <ul><li>Total Fixed cost for one day </li></ul><ul><li>= Rent + Electricity + Gas cylinder + Depreciation </li></ul><ul><li>= 300 + 15 + 210 + 6.5 </li></ul><ul><li>= Rs.531.5 </li></ul><ul><li>Fixed cost per unit = Total Fixed cost/Total no.of units </li></ul><ul><li>=531.5/400 </li></ul><ul><li>=Rs.1.32875 </li></ul>
  9. 9. <ul><li>Total variable cost for one day </li></ul><ul><li>= Milk + Sugar + Tea leaves </li></ul><ul><li>= 520 + 130 + 85 </li></ul><ul><li>= Rs.735 </li></ul>
  10. 10. <ul><li>He sells 400 cups of tea everyday at Rs. 4 per cups </li></ul><ul><li>Cost of milk per unit = Cost of milk /Total cups of tea sold </li></ul><ul><li>= 520 / 400 </li></ul><ul><li>= 1.3 Rs per unit </li></ul><ul><li>Cost of sugar per unit = Cost of sugar/Total cup of tea sold </li></ul><ul><li>= 130 / 400 </li></ul><ul><li>= 0.325 Rs. per unit </li></ul><ul><li>Cost of tea leaves per unit = Cost of tea leaves / Total cups of tea sold </li></ul><ul><li>= 85 / 400 </li></ul><ul><li>= 0.2125 Rs. per unit </li></ul>
  11. 11. <ul><li>Variable Cost per unit = Rs. 1.3 + Rs. 0.325 + Rs. 0.2125 = Rs. 1.8375 </li></ul><ul><li> (OR) </li></ul><ul><li>Variable Cost per unit = Total variable cost/Total no. of units = Rs. 735/ 400 cups </li></ul><ul><li> = Rs. 1.8375 </li></ul>
  12. 12. <ul><li>He sells 400 cups of tea everyday at Rs. 4 per cup of tea. </li></ul><ul><li>Total Sales = 400 cups x Rs.4 </li></ul><ul><li>= Rs.1,600 </li></ul>
  13. 13. <ul><li>Calculation is done on per day basis </li></ul><ul><li>He sells 400 cups of tea everyday at Rs. 4 per cups </li></ul><ul><li>Total cost = Variable Cost + Fixed Cost </li></ul><ul><li>= 735 + 531.5 </li></ul><ul><li>= Rs.1266.5 </li></ul><ul><li>Total profit = Total sales – Total cost </li></ul><ul><li>= 1600 – 1266.5 </li></ul><ul><li>= Rs.333.5 </li></ul>
  14. 14. <ul><li>Contribution = Sales – Variable Cost </li></ul><ul><li>= 1600 – 735 </li></ul><ul><li>= Rs.865 </li></ul><ul><li>Contribution Per Unit = Contribution/No. of Units sold </li></ul><ul><li>= 865 / 400 </li></ul><ul><li>= Rs.2.1625 per unit </li></ul>
  15. 15. <ul><li>This ratio indicates the relationship between contribution and sales. </li></ul><ul><li>PV ratio can be enhanced by either reduction in variable expenses or increase in sale price or both. </li></ul><ul><li>P/V Ratio = Contribution x 100 </li></ul><ul><li>Sales </li></ul><ul><li>P/V ratio = (865/1600) x 100 </li></ul><ul><li> = 54.06% </li></ul>
  16. 16. <ul><li>The break-even point (BEP) is the point at which cost of expenses and revenue are equal that is there is no net loss or gain. </li></ul><ul><li>Break Even Point = Fixed Cost/Contribution </li></ul><ul><li>(in units) Per unit = 531.5 / 2.1625 </li></ul><ul><li>= 246 units </li></ul><ul><li>Break Even Point = Fixed Cost/PV Ratio </li></ul><ul><li>(in rupees) = 531.5/54.06% </li></ul><ul><li> = Rs.983.167 </li></ul>
  17. 17. 1600 1266.5 984 531.5 246 400 TR TC UNITS COST/REVENUE V C=Rs.735 FC BREAK-EVEN POINT PROFIT=Rs.333.5
  18. 18. <ul><li>Contribution = Revenue – Variable cost </li></ul><ul><li>Break even point = Fixed cost / Contribution per unit </li></ul><ul><li>Increase in the revenue will increase the contribution and hence decrease the break even point </li></ul><ul><li>Decrease in the revenue will decrease the contribution and hence increase the break even point </li></ul>
  19. 19. TR TC 1266.5 984 246 >246 TR1 TR2 FC UNITS <246 COST/REVENUE
  20. 20. <ul><li>Contribution = Revenue – variable cost </li></ul><ul><li>Break even point = Fixed cost / Contribution per unit </li></ul><ul><li>Increase in the cost (either variable or fixed cost ) will cause an increase in the break even point. </li></ul><ul><li>Decrease in the cost (either variable or fixed cost) will cause a decrease in the break even point. </li></ul>
  21. 21. <246 246 >246 UNITS COST/REVENUE TR TC1 TC2 TC
  22. 22. <ul><li>Abhas </li></ul><ul><li>Anurag </li></ul><ul><li>Deepthi </li></ul><ul><li>Hansita </li></ul><ul><li>Lavakusha </li></ul><ul><li>Maleshwari </li></ul>

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