Tea Cvp Analysis

FIRST ASSIGNMENT

INTRODUCTION  Location : Bagh Amberpet  Business : Tea Shop  Total Cost  Total Sales  Break-Even Analysis  Effect on Break-Even Point with

respect to cost.

changes in revenue and

 TEA LEAVES  MILK  SUGAR  WATER  GAS

FIXED COST Fixed costs are business expenses that are not dependent on the level of activities of the business  Ex : rent of shop, electricity, etc… 

VARIABLE COST

Variable costs are business expenses that change in proportion to the level of activities of a business.  Ex : milk ,sugar, tea leaves. 

He invested Rs.20,000 for Trolly.



He invested Rs.4,000 for gas cylinder, gas stove and glasses.



Cost

of cylinder is Rs.840, which ends in 4 days. Water is free of cost. Cost is calculated on per day basis. Depreciation is charged at 10% per annum on trolly and gas stove.

FIXED COST    

Rent Rs.300 Electricity Rs.15 Gas Cylinder Rs.210 Depreciation  Trolly Rs.5.5  Gas stove Rs.1

VARIABLE COST 





Milk 20 litres @ Rs.26 per litre = Rs.520 Sugar 5 kg @ Rs.26 per kg = Rs.130 Tea leaves 0.5 kg @ Rs.170 per kg = Rs.85

 Total

Fixed cost for one day = Rent + Electricity + Gas Depreciation = 300 + 15 + 210 + 6.5 = Rs.531.5  Fixed cost per unit = Total Fixed cost/Total =531.5/400 =Rs.1.32875

cylinder +

no.of units

 Total

variable cost for one day = Milk + Sugar + Tea leaves = 520 + 130 + 85 = Rs.735



He sells 400 cups of tea everyday at Rs. 4 per cups



Cost of milk per unit = Cost of milk /Total cups of tea sold = 520 / 400 = 1.3 Rs per unit



Cost of sugar per unit = Cost of sugar/Total cup of tea sold = 130 / 400 = 0.325 Rs. per unit



Cost of tea leaves per unit = Cost of tea leaves / Total cups of tea sold = 85 / 400 = 0.2125 Rs. per unit

 Variable

0.325 + 1.8375 (OR)

Cost per unit = Rs. 1.3 + Rs. Rs. 0.2125 = Rs.

Variable Cost per unit = Total variable cost/Total no. of units = Rs. 735/ 400 cups = Rs. 1.8375

 He

sells 400 cups of tea everyday at Rs. 4 per cup of tea.



Total Sales

= 400 cups x Rs.4 = Rs.1,600

 Calculation

is done on per day basis

 He sells 400  Total cost

cups of tea everyday at Rs. 4 per cups = Variable Cost + Fixed Cost = 735 + 531.5 = Rs.1266.5 = Total sales – Total cost  Total profit = 1600 – 1266.5 = Rs.333.5

 Contribution

 Contribution

sold

= Sales – Variable Cost = 1600 – 735 = Rs.865 Per Unit = Contribution/No. of Units = 865 / 400 = Rs.2.1625 per unit

This ratio indicates the relationship between contribution and sales.  PV ratio can be enhanced by either reduction in variable expenses or increase in sale price or both.  P/V Ratio = Contribution x 100 Sales 



P/V ratio

= (865/1600) x 100 = 54.06%

 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.

 Break

Even Point (in units)

 Break

= Fixed Cost/Contribution Per unit = 531.5 / 2.1625 = 246 units

Even Point = Fixed Cost/PV Ratio (in rupees) = 531.5/54.06% = Rs.983.167

.5 3 3 TR s.3 R IT= F O TC PR

BREAK-EVEN POINT

COST/REVENUE

1600 1266.5

V C=Rs.735 984

531.5

FC

246

400 UNITS

 Contribution

= Revenue – Variable cost

 Break

even point = Fixed cost / Contribution per unit

 Increase

in the revenue will increase the contribution and hence decrease the break even point

 Decrease

in the revenue will decrease the contribution and hence increase the break even point

TR 1

TR TC

1266.5

COST/REVENUE

2 R T

984

FC

<246

246

>246 UNITS

 Contribution

= Revenue – variable

cost  Break even point = Fixed cost / Contribution  Increase

per unit

in the cost (either variable or fixed cost ) will cause an increase in the break even point.  Decrease in the cost (either variable or fixed cost) will cause a decrease in the break even point.

2 TC

TR

TC

COST/REVENUE

TC1

<246

246

>246 UNITS

 Abhas  Anurag  Deepthi  Hansita  Lavakusha  Maleshwari