Cost Analysis of Tea Sale

Murali Krishna Garlapati

25th February 2015

Let the value of sales for the month be 'A'

Let the value of cost for the month be 'B'

Then value of profit for the month 'P' = A - B

CALULATING 'A' :
Assumptions:
1) Let us assume that the amount of milk used to make tea for a day in
the month of December is 50 ltrs.
2) Since the month of December is in winter season and the month of June
is in summer season , let us assume that the amount of milk used for the
month of June is 40 ltrs.
3) For simplification, the sale of cigarettes, magazines, biscuits etc are not
considered and, the sale of only tea and other beverages is considered.
4) Also let us assume that the ratio of milk to water to make tea is 5:3.
5) The volume of one cup of tea is 80 ml.
6) The amount of tea wasted or unsold per day = 2 ltrs
7) Price of tea per cup = Rs.6 .

Cost Projections :
Formulae :
Revenue per month

Revenue per day * no. of .days

Volume of tea sold per day

Volume of tea made of diluted milk

(wastage)

December revenue :
Volume of milk used per day = 50 lts
Volume of water added per 50 ltrs milk = ( 50/5 ) * 3 = 30 lts
Volume of tea sold (in ltrs)= (50 + 30) = 80 lts
Volume of tea sold per day (in ml) = 80000 2000 = 78000 ml
( 2000 ml is assumed to be wasted per day )
No of tea cups sold = (78000/80) = 975 cups
Revenue per day = (975 * 6) = Rs. 5,850 ( Value per day )
No of days in the month of December = 31 (days)
Revenue for the month of December = (5,850 * 31) = Rs. 1,81,350

June revenue :
Volume of milk used per day = 40 lts
Volume of water added per 40 ltrs milk = ( 40/5 ) * 3 = 24 lts
Volume of tea sold (in ltrs)= (40 + 24) = 64 lts
Volume of tea sold per day (in ml) = 64000 - 2000 = 62000 ml
( 2000 ml is assumed to be wasted per day )
No of tea cups sold = (62,000/80) = 775 cups
Revenue per day = (775 * 6) = Rs. 4,650 ( Value per day )
No of days in the month of June = 30 (days)
Revenue for the month of June = (4,650 * 30) = 1,39,500

CALCULATING 'B':
Formulae:
Cost incurred per month = (Cost per day ) * ( no of days ) + Mandatory
expenses
Mandatory expenses include rent, electricity bill and other miscellaneous
charges.

The metrics of materials used in tea:

1) The amount of sugar used per 80 ltrs of tea = 7.5 kg
2) The amount of tea powder used per 80 ltrs of tea = 2.5 kg
3) The amount of gas used for 80 ltrs of tea = 5 kg
4) The amount of electricity consumed per month = 120 units

The market value of commodities used :

5) The cost of milk per ltr = 36 Rs
6) The cost of sugar per kg = 32 Rs ( In whole sale market )
7) The cost of Tea powder per kg = 240 Rs
8) The daily wage of tea maker = 450 Rs
9) The daily wage of worker = 250 Rs
10)

The cost of 100 Plastic tea cups = 20 Rs ( 0.2 Rs per Cup )

11)

The water bill is assumed to be 3000 per month

12)

The cost of 19 kg commercial gas cylinder in Bangalore =

1265 Rs

13)

The per unit charge of 1 phase commercial electricity = 7.75

Rs ( 100 Rs tax in each

14)

bill)

The per month Value of commodities like broom sticks, Dish

wash bars,
news paper bill and other miscellaneous things = 2000 Rs
15)

The per month value of transport is assumed to be 3000 Rs

December Cost Calculation :

C1 = ( 50 * 36 ) * 31 = 55,800 ( Milk Value )
C2 = ( 7.5 * 32 ) * 31 = 7,440 Rs ( Sugar value )
C3 = ( 2.5 * 240 ) * 31 = 18,600 Rs (Tea powder Value )
C4 = ( 1265 / 19 ) * ( 5 * 31 ) = 10,320 Rs ( Gas Value )
C5 = 700 * 31 = 21,700 Rs ( Labour Wages )
C6 = ( 975 * 31 ) * (0.2 ) = 6,045 Rs ( Tea cups value )
C7 = 12,000 Rs ( Rent )
C8 = 3,000 Rs (Water Bill )
C9 = ( 120 * 7.75 ) + 100 = 1,030 Rs
C10 = 5000 Rs ( Travel + miscellaneous charges )

Total value (B) = C1 + C2+ C3........ C10 = 1,40,935

June Cost Calculation :

C1 = ( 40 * 36 ) * 30 = 43,200 ( Milk Value )
C2 = ( 6 * 32 ) * 30 = 5,760 Rs ( Sugar value )

C3 = ( 2 * 240 ) * 30 = 14,400 Rs (Tea powder Value )

C4 = ( 1265 / 19 ) * ( 4 * 30 ) = 7,990 Rs ( Gas Value )
C5 = 700 * 30 = 21,000 Rs ( Labour Wages )
C6 = ( 775 * 30 ) * (0.2 ) = 4,650 Rs ( Tea cups value )
C7 = 12,000 Rs ( Rent )
C8 = 3,000 Rs (Water Bill )
C9 = ( 120 * 7.75 ) + 100 = 1,030 Rs
C10 = 5000 Rs ( Travel + miscellaneous charges )

Total value (B) = C1 + C2+ C3........ C10 = 1,18,030

Calculation of 'P' :
The Value for the month of December

= Revenue Cost

=(AB)
= (1,81,350 1,40,935)
= 40,415 Rs

The Value for the month of June

= Revenue Cost
=(AB)
= (1,44,150 1,18,030 )
= 26,120 Rs

The difference in revenue for the months of December

and June =

14,295 Rs

Steps that can be taken to increase the revenue of leaner month :

1) Changing the ratio of milk to water to 5:4

Milk Volume per day after the change = ( 64 * 5 ) / 9 = 35.6 lts
(Rounded to 36 lts)
Milk saved per day = 4 lrs
Milk saved per month = 120 lts
The profit thus increased = ( 120 * 36 ) = 4320 Rs

2)

As the month of June is part of summer

Beverages like packed butter milk can be sold
Assuming that 200 pkts of butter milk can be sold a day in June
(The profit per packet of butter milk is 1.5 Rs)
The profit on selling butter milk = ( 300 * 30 ) = 9,000

3)

Also the amount of gas used per unit of tea is more in December is

more when

compared to June, because gas is used not just to make

tea but to keep it warm also

4) Also in India, June is the month where more marriages take place
when compared to

December and

gathered, marriage contracts will be given

as per the information

just for serving tea

all day as well. Assuming a profit of 3000 per contract, being able

to grab some contracts will decrease the profit difference for

Ramesh.