ACCOUNTING FOR DECISION MAKING – SECTION B GROUP 10

COSTS FOR MINI ENTERPRISES

RAINBOW CAFÉ
FOOD FACTORY

Pooja Rath UM19114

Saswat Samantaray UM19125
Satwik Dash UM19126
Satya Brata Hota UM19127
Satyajeet Lenka UM19128
 RAINBOW CAFÉ

Business Model

Balance Sheet

A balance sheet provides a picture of a company's assets and liabilities,

as well as the amount owned by shareholders. A balance sheet can help
you determine what a business is really worth. When reviewed with
other accounting records and disclosures, it can warn of many potential
problems and help you to make sound investment decisions.

BALANCE SHEET Till October 2019

ASSETS Rs.
Current assets
₹
Cash in Hand
10,000.00
₹
Cash in Bank
34,000.00
₹
Inventory
8,500.00
₹
Accounts Receivable
3,500.00
Fixed assets

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 ₹
Renovations/improvements
65,400.00
₹
Furniture & fitout
1,52,000.00
₹
Equipment/tools
2,50,000.00
₹
Other Assets
45,000.00

₹
Total assets
5,68,400.00

LIABILITIES Rs.
₹
Owner's Equity 1,50,000.00
Current/short-term liabilities
₹
Accounts payable
4,700.00
₹
Interest payable
40,950.00
₹
Income tax
22,800.00
Long-term liabilities
₹
SBI Loan @ 11.7%
3,50,000.00
₹
Total liabilities
5,68,450.00

All the information put on the balance sheet was garnered by the owner
and main chef of the Rainbow Café. The amounts taken are the
amounts as told by the owner and are estimations based on the
information given.

Rainbow café started a few years back with seed capital of Rs. 1,50,000
and took a bank loan from SBI at 11.70% of Rs. 3,50,000. The entire
project of the café was financed by these 5 lakh rupees at the initial
stage, the fixed assets were financed by the loan and owners fund. The
place was their father’s property so for zero cost they started this
business venture here, and they only paid for renovation charges . The
Income Tax shown was the amount as told by the owner as he was
reluctant to give out much details on the exact tax paid.

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From this balance sheet we can understand that the cash held by them
is very low because they re-invest the profit generated into their
business on a regular basis. Most of their payments and receipts to
vendors are done on accrual basis. The inventory kept is very low
because they are perishable items , so they try to maintain a basic
inventory of some frozen goods and spices for a regular stock flow.

Income Statement and BEP

The details as given by the owner on the sales that they make on a
monthly basis was around Rs. 5,75,000. And after the initial year, they
started making profits until then they usually lacked to generate much of
revenue to break even for profits. Since they offer Ala Carte food
options, they had incurred costs of variety of ingredients that led high
COGS and vendor payments. Now for the month that we got the details
for from that we can analyse that the restaurant has to generate a
revenue of Rs.3,18,605 to break even with its costs. Now even after
breaking even with the costs the café was able to generate a profit of
Rs. 1,35,800 from which it maintains a cash balance of Rs. 44,000 and
the rest of the amount is re invested in the business for further
production and sales.

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The COGS show that the amount that was incurred to get the food
products ready, according to the information it was analysed as they buy
in bulk on a daily basis from a fixed vendor it offers them a discount and
the raw materials used in each product is very minimal hence its cost
saving. They use up 2-3 cylinders on a monthly basis costing around Rs.
2200. They have no distribution other than their in-house restaurant and
swiggy/Zomato deliveries which are to paid a commission of 15% of the
sales made. Here we have assumed the entire revenue to calculate the
commission on the prudence principle of accounting.

The Income Tax was shown as payable in the balance sheet as it is

outstanding for the most of the year but it is an expense incurred at the
end, hence we have also incorporated it in the income statement as our
expense paid.

Costs and Cost Sheet

Direct costs are related to producing a good or service. A direct cost

includes materials, labour, expense, or distribution cost associated with
producing a product. It can be easily traced to a product, department or
project.

Indirect costs, on the other hand, are expenses unrelated to producing a

good or service. An indirect cost cannot be easily traced to a product,
department, activity or project.

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Fixed costs do not vary with the number of goods or services a company
produces over the short term.

Variable costs fluctuate as the level of production output changes,

contrary to a fixed cost. This type of cost varies depending on the
number of products a company produces. A variable cost increases as
the production volume increases, and it falls as the production volume
decreases.

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The costs of the café were identified as per the information given by the
owner the Direct Materials consisted of COGS and Inventory because
that they are directly related to the production of the food products,
Labour was the salary given to the chefs who make the food, the chefs
themselves serve the food. The distribution costs include commissions
to swiggy and Zomato for featuring their restaurant and for the delivery
services. The information was given of no work in progress and finished
goods were given, all the products produced are consumed or delivered
immediately.

FOOD FACTORY

Business Model

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Balance Sheet

A balance sheet provides a picture of a company's assets and liabilities,

as well as the amount owned by shareholders. A balance sheet can help
you determine what a business is really worth. When reviewed with
other accounting records and disclosures, it can warn of many potential
problems and help you to make sound investment decisions.

All the information put on the balance sheet was garnered by the owner
cum chef of Food Factory Truck. The amounts taken are the amounts as
told by the owner and are estimations based on the information given.

Food Factory Truck started a few years back with seed capital of Rs.
1,30,000 and took a Commercial Vehicle loan for the truck at 11.11% of
Rs. 4,50,000. The entire project was financed by these capital, the
owners fund was used up in renovating the truck and purchase of fixed
assets. The Income Tax shown was the amount as told by the owner as
he was reluctant to give out much details on the exact tax paid.

From this balance sheet we can understand that the cash held by them
is very low because they re-invest the profit generated into their

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business on a regular basis. Most of their payments and receipts to
vendors are done on accrual basis. The inventory kept is very low
because they are perishable items , so they try to maintain a basic
inventory of some frozen goods, spices and mayonnaise for a regular
stock flow.

Income Statement and BEP

The details as given by the owner on the sales that they make on a
monthly basis was around Rs. 4,50,000. And after the initial year, they
started making profits until then they usually lacked to generate much of
revenue to break even for profits. Since they offer Ala Carte food
options, they had incurred costs of variety of ingredients that led high
COGS and vendor payments. Now for the month that we got the details
for from that we can analyse that the restaurant has to generate a
revenue of Rs.2,29,695 to break even with its costs. Now even after
breaking even with the costs the café was able to generate a profit of
Rs. 1,19,650 from which it maintains a cash balance of Rs. 33,000 and
the rest of the amount is re invested in the business for further
production and sales.

The COGS show that the amount that was incurred to get the food
products ready, according to the information it was analysed as they buy
in bulk on a daily basis from a fixed vendor it offers them a discount and
the raw materials used in each product is very minimal hence its cost
saving. They use up 1 cylinder on a monthly basis costing around Rs.

8
1100 and rest of the food is baked or induction cooked, hence the
electricity paid is high. They have no distribution other than their in-
house restaurant and swiggy/Zomato deliveries which are to paid a
commission of 15% of the sales made. Here we have assumed the
entire revenue to calculate the commission on the prudence principle of
accounting.

The Income Tax was shown as payable in the balance sheet as it is

outstanding for the most of the year but it is an expense incurred at the
end, hence we have also incorporated it in the income statement as our
expense paid.

Costs and Cost Sheet

Direct costs are related to producing a good or service. A direct cost

includes materials, labour, expense, or distribution cost associated with
producing a product. It can be easily traced to a product, department or
project like raw materials, packages, wrapping materials.

Indirect costs, on the other hand, are expenses unrelated to producing a

good or service. An indirect cost cannot be easily traced to a product,
department, activity or project like equipment and utensils.

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Fixed costs do not vary with the number of goods or services a company
produces over the short term like salary.

Variable costs fluctuate as the level of production output changes,

contrary to a fixed cost. This type of cost varies depending on the
number of products a company produces. A variable cost increases as
the production volume increases, and it falls as the production volume
decreases.

The costs of the café were identified as per the information given by the
owner the Direct Materials consisted of COGS and Inventory because
that they are directly related to the production of the food products,
Labour was the salary given to the chefs who make the food, the chefs
themselves serve the food. The distribution costs include commissions
to swiggy and Zomato for featuring their restaurant and for the delivery
services. The information was given of no work in progress and finished
goods were given, all the products produced are consumed or delivered
immediately.

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 SUGGESTIONS

1) These mini enterprises can maintain a basic book of records

where they can write just income on side and expenses on the
other side on their daily business hours to keep a track.
2) Keep track of small expenses.
3) This would help them to compare and manage their businesses
more efficiently.
4) They can start invoicing, to maintain projections.
5) Keep the legal documents handy.

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