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North South University

School of Business
Department of Accounting and Finance
Course: ACT 202
Student Name Student ID
Md. Yahya Towsif 2013380630
Mst.Sumaiya Islam 2212594630
Nabiha Tahsin Rinita 2132465630
Abdullah Al Hossain Mehedi 2132617630
Md. Rahiyan Uddin 2211901630
Submitted to,
Mahbub-E-Farid
Department of Business administration
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Costing and Profit

Of
The Second Cup Coffee Company
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TABLE OF CONTENTS
Subjects
Page Number

Acknowledgment 04

Introduction 05-06

Product Details 07-09

Production Process 10-11

Relevant Cost Identification 12-16

Predetermined Overhead Rate 17

Manufacturing Overhead 18

Costing Method 19

Units of Production 20-22

Various Profit / Contribution 23-24

Margin

Break Even Analysis 25-27

Feedback 28-32

Recommendations 33
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Acknowledgment:

I want to express my sincere gratitude to Mr. Mahbub -E- Farid ,

Lecturer; Department of Business Administration, North South
University, who is my respected academic supervisor.

His words of support and counsel served as the project's

cornerstone. Please accept my thanks for his time and ongoing
assistance. I want to thank the other members of my group for
their hard work and for contributing some excellent project-
related ideas. Every time, their concept was clear and precise.
And as a result of all the effort that has been done, this project is
finished.
th
10 August, 2016
To
Iftear Ahmed Chowdhury (Iac)
Lecturer,
North South University, Dhaka.
Bangladesh.
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Subject: Submission of group

report
Dear Sir ,
It is a great pleasure for us to
have the opportunity to prepare
our group report which is
prepared
as a requirement of the
Accounting course ACT202 of
BBA program under
Department of
Business Administration, North
South University.
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In this report, we have tried to

come up with our project about
a ‘Master Budget of a Fuchka
Dokan’. We would like to thank
you for giving us the
opportunity to have a chance to
prepare
this group report under you.
If you have any further inquiry
concerning our additional
information, we would be very
pleased
to clarify the information.
Sincerely yours,
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Mohammad Samir– 143-1127-

030
Thank You

Introduction:

In the 2010s the country saw an emergence of coffee culture where

coffee shops as a hangout place became popular. The growing
population had money to spend in a country experiencing more than
7% GDP growth and unfortunately did not have much in the way of
entertainment. So eating out, or hanging out at food establishments,
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dominated the entertainment scene in Bangladesh. In Bangladesh, the

typical coffee consumer was either a young professional or a college or
university student (college in Bangladesh refers to the 11th and 12th
grades). According to research, more than 90% of customers at coffee
shops were between the ages of 19 and 32. Coffee shops were the
perfect setting for casual business meetings, spending up with family,
and even finishing homework because of their cozy atmosphere and
free Wi-Fi. Initially, Second Cup Coffee Roasters positioned themselves
as a coffee roaster aimed at competing coffee businesses. But as time
went on, Second Cup Coffee Roasters discovered that it needed to
create a coffee shop for the city of Dhaka's coffee lovers. Since
welcoming direct customers in 2011, the premium coffee roasters have
grown to seven locations across Dhaka as a result of their popularity.
Having established a coffee academy, Second Cup provided barista
training, advisory services, and machine and coffee bean sales to coffee
shops. Rick Hubbard, a fervent supporter of developing Dhaka's coffee
culture, described his unwavering commitment to serving top-notch
coffee. We think that if we can assist others in opening coffee shops,
we will be able to sell beans, which will benefit our primary business.
We also believe that Dhaka is a large enough market to accommodate
widespread participation. Second Cup's constrained menu, which
consists of cookies, pastries, a few sandwiches, and a selection of
various treats, also helped the company stay focused on its coffee
operation. Espresso beverages, mochas, flavored lattes, and iced lattes
are among the coffee selections that appeal to a variety of clients.

This is the whole of the second cup company . From this project we will
get to know how the company works , what is its cost and profit
analysis what are their main goals, their break even points. Their net
profit and more.
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Product details:

The second cup coffee company has loads of products

and among them coffee is the most valuable. They have
different types of coffee and they are mainly:
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1. Frozen Chocolates
2. Coffee Chillers
3. Tea Chillers
4. Fruit Chillers
5. Cookies and cream chillers
6. Smoothies
7. Espresso
8. Tea lattes
9. Green teas
Signature Hot chocolates

And more products like these.

Production Process:

For productions process we all need some raw

materials and we have some own ways of producing
products and they are:
Iced Coffee with milk:
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 ice 
 coffee 
 cream/
 granulated white sugar 

Brewed Coffee:

 ground coffee 
 water
Café Mist
 Coffee beans/ground coffee
 Milk (soy milk/organic milk
 Sugar
Decaf Pike Place Roast
 water 
 grind beans
 ground coffee 10grams

CHOCOLATE BEVERAGES:
 Hot Chocolate
solid chocolate 
 Milk 
 Cream
 Salt pinch

Peppermint Hot Chocolate:

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Heavy cream 
Milk 
Sugar 
Salt 
Bittersweet chocolate 
Peppermint oil 
Sweetened whipped cream
Chocolate shavings
White Hot Chocolate
warmed milk 
 White chocolates 

Production Process:

There is a process of every production the basic of

every production is given below:
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Second Cup accepts two techniques for processing coffee

cherries during the harvesting process in order to remove
the bean from the cherry. The first process is called dry
or unwashed. The outer layers of the cherries are
removed after milling and sun drying. Coffee as a result
has more body and less acidity. The cherry seeds are
forced out from the skin in the second procedure, known
as wet or washed. The outer layers of the seeds are then
removed by soaking them in a fermentation tank. Coffee
that results is more consistently acidic. Second Cup uses
batch roasting, which involves putting small batches of
100–200 kg of seeds in separate roasters, to roast coffee.
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Compared to other systems, this one ensures a higher

level of quality control.

The Cost of products:

In case of the productions there are various kinds of

costs. These cost are fully and thought and analyzed by
the respective company.
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The product cost of The Second Cup is given below:

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Cost Items Direct Manufacturing Period Cost Fixed Cost Variable

Materials Cost
Overhead

Coffee and Tea

variants :

Atok (Washed)

2kg x 350tk 700 tk

Bukidnon
(Natural)

Mt. Apo 3kg x 320tk 960 tk

(Honey)

Sagada Coffee

1000 tk

4kg x 250tk

Chamomile Tea

2 kg x 170 tk 340 tk
Wildberry Tea
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White Sugar

3 kg x 230 tk 690 tk

Brown Sugar

1 kg x 310 tk 310 tk

Milk

Heavy Cream 5kg x 120 tk 600 tk

Labelling and
packaging for
5kg x 130 tk 650 tk
take outs

10 liter x 70 tk
Labelling and
packaging 700 tk
supervisor
salary 18 oz x 550 tk

9900 tk

Supervisor
salary

5 tk x 50000 units 25000 tk

Packeging and =25000 tk
labeling
[depreciation]

8000 tk
8000 tk
Bags
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Cost of packing
+ delivery
12000 tk 12000 tk
charge

14000 tk 14000 tk
Utility

Factory Rent
0.05 tk x
50000=2500 tk
2500 tk

Manager wages
50000 x 0.10btk =
5000 tk

5000 tk
Coffee mixing
machine
deoreciation
15000 tk
15000 tk

Total

35000 tk
35000 tk

30000 tk
30000 tk
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15000 tk

15000 tk

48350 tk

129000 tk

161500 tk

Calculating Predetermined Overhead Rate for

Applying Manufacturing Overhead:

To distribute overhead costs to product costs, businesses employ preset

overhead rates.

After estimating indirect costs, choosing a cost driver, and estimating the
activity associated with that cost driver, a formula is used to apply
indirect costs to production output. predetermined overhead rate
(POHR), which is calculated at the start of each period by dividing the
projected manufacturing overhead cost by an allocation basis, is used to
apply manufacturing overhead (MOH) to products. Direct labor hours,
direct labor dollars, machine hours, and direct materials are some of the
bases for allocation that are frequently employed.
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We use the quantity produced as the allocation foundation for POHR

calculation because our company only produces and sells one type of
product. The projected MOH that we expect to incur consists of a few
indirect labor, materials, and administrative costs. Salary, Poly Bag,
Packaging Cost, Delivery Charge, Utility, Factory Rent, Workers'
Wages, and Depreciation are examples of indirect materials.
When we determine the cost per unit of the product, the POHR will
assist us in determining the applied MOH.
POHR
= Estimated Total MOH /
Estimated Total Allocation Base
From the table,
161500/50000 unit =3.23 tk per unit

Calculating manufacturing Cost per Unit:

A product's entire cost of production, including direct labor costs, direct

material costs, administrative charges, and any other production-
related costs. To assess the effectiveness and productivity of the
business, manufacturing costs are typically divided from other
expenses. In Bangladesh, wages are normally paid on a monthly basis
for labor. We pay for our labor on a monthly basis as well, thus we are
not an outlier and therefore causes the cost to be a MOH cost rather
than a Direct Labor cost. As a result, there are no Direct Labor Costs. In
this instance, we simply sum the direct material and applied
manufacturing overhead needed to make a single product to determine
the Manufacturing Cost per unit. The Applied Manufacturing Overhead
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is computed by multiplying POHR with the Allocation base used. We

have already calculated our POHR and we are producing 50000 units
and per unit was 3.23 tk .

Costing Method:

This business employs the absorption costing methodology. To track all

costs involved in creating a single product, "absorption costing," a
managerial accounting technique, is employed. Rent, insurance, direct
supplies, and direct labor are just a few of the direct and indirect
expenses that are taken into account by this strategy. Absorption
costing has been used by Second Cup Coffee in their most recent
financial statements because they are tracking both direct and indirect
expenses. Absorption costing allocates fixed overhead costs to each
unit of a product that is produced during the time, which is how it
differs from variable costing. Even though a product wasn't sold during
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the time period under consideration, fixed overhead expenses are

nevertheless ascribed to it when absorption pricing is used.When
employing this costing method, additional costs are added to the
ending inventory, which is subsequently displayed as an asset on the
balance sheet for the next month.

Selling Price

The actual final cost of a good or service is what a business costs a

customer to obtain it. The type of goods a company sells and the state
of the market both influence how much a markup is applied. It could
also differ from one industry to another.

Our product line includes coffee, tea, drinks, and food, therefore there
is some market competition.
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Therefore, after careful consideration of the client, market, and quality,

the selling price should be determined. If a selling price is set with only
a minimal level of scrutiny, the business may be at danger.

Selling Price per unit is calculated by multiplying the Manufacturing

cost per unit with the mark up rate.

Assumption: Setting selling price by marking up the manufacturing cost

by 15%.
Selling price per unit = MOH per unit x 1.15
= 3.349x 1.15
=3.85135 tk

Cost - Volume - Profit Analysis

Income Statement for 50000 units have been shown below -

Sales (50000 units x 4 tk per unit ) 200000

taka
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Variable Expense 48350

taka
Contribution Margin 151650
taka
Fixed Expense 129000
taka
Net Income 22650
taka

Cost - volume - profit Analysis

The fundamental goal of CVP analysis is to predict how the following

five elements will effect profitability. These decisions include what
goods and services to sell, what prices to adjust, what marketing
strategy to employ, and what cost structure to keep.
1. Selling prices
2. Sales volume
3. Unit Variable Cost
4. Total fixed cost
5. Mixed of product sold
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In relation to these elements, managers generally make the following

assumptions in order to streamline CVP analysis calculations:
● Selling price is constant. The price of a product or service will not
change.
● Costs are linear and can be accurately divide into variable
(constant per unit) and fixed (constant in total) elements
● In multiproduct companies, the sales mix is constant.
● In manufacturing companies, inventories do not change (units
produced = units sold).

All business expenses, including those related to production, sales, and

administration, must be classified as either fixed or variable costs for
CVP analysis.

Contribution margin and contribution margin ratio:

The amount of sales income that remains after variable costs have been
subtracted is known as the contribution margin. As a result, it is the
amount that may be used to pay fixed costs and then generate profits
for the current time. The amount of sales BDT TAKA that can be used to
pay for (or contribute to) fixed costs is what is meant by this. It is the
percentage of sales that can be used to cover fixed costs when
expressed as a ratio. The following sales result in the company making
money once fixed costs have been paid. Sales revenue minus all
variable costs results in the contribution margin. It could be calculated
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in terms of dollars, taka, or per unit. If the second cup company sold
50000 units a month, then the per-unit sales price would be 4 taka, and
the total variable cost would be 48350 taka, or 0.967 taka. 3.033 taka is
the contribution margin per unit. 75.825% is the contribution margin
ratio. Either the contribution margin expressed in dollars or the
contribution margin expressed per unit can be used to calculate it. The
contribution margin is divided by the sales or revenues amount to
determine the contribution margin ratio.

Contribution margin
BDT TK UNIT

Sales (50000x4) 200000 tk 4

Variable Cost (50000 x 0.967) 48350 tk 0.967
Contribution margin 151650 3.033

The difference between a company's sales and variable costs,

expressed as a percentage, is the contribution margin ratio. The total
earning available to pay for fixed costs and produce profit is
represented by an entity's total margin.
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Contribution Margin Ratio (CM)

Contribution margin ratio = CM/ total sales

= 151650 / 200000
=0.75825
=75.825%

The Second Cup contribution margin is relatively high , it will be

sufficient to also cover fixed costs and administrative overhead.

Break - Even point :

The sales level at which net income is equal to zero is known as the
break-even point. In other words, the moment at which contribution
margin equals fixed costs, sales income equals total variable costs plus
total fixed costs.

Break - Even Unit :

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Profit = CM per unit x Q – Fixed Expenses

0 = 3.033 x break even sale – 129000

Q = 129000 / 3.033
= 42532 units

The break-even units of 42532 is calculated by dividing fixed

costs of 129000 tk by contribution margin 3.033.

Break - Even Income Statement:

The Second Cup Company Break - Even Income Statement

BDT TK
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Revenue (42532x4) 170128 tk

Variable Cost (42532 x 0.967) 41128

Contribution Margin 129000 tk

(–) Fixed Cost 129000 tk

Net Income 00 tk

Break - Even point in Dollars:

Profit = CM Ratio x Sales – Fixed Expense

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0 = 75.825% x BE sales – Fixed Expense

BE sales = 129000 / 0.75825

= 170128 tk

The Break Even point in dollars of 170128 tk is calculated by dividing

total fixed costs of 129000 by the contribution ratio of 0.75825.

Conclusion:

The second cup coffee company is basically built to serve

the consumers best coffee in the whole town and it also
and renowned among the coffee lovers. The methods
they use for their profit and their labor management is
surely well for themselves. Though the company should
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invest more on their man power which will increase their

chances of being more profitable.

Feedbacks from the individuals:

Md. Rahiyan Uddin (2211901630):

The project was one of the unique projects of my life because it
not only enhanced my mathematical skill but also helped to
develop my communicating skills as we interviewed the
company ourselves. It also helps us to understand how the
companies work and this experience will help running our own
companies. Later I got to know how small company works with
their product and how they control their production.
Mst Sumaiya Islam (2212594630):

As an individual point on view this project helped me to

gather knowledge about field work and this helped me
with collecting data and understanding how differently
things are used. This helped me understand that only the
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knowledge of books won’t do this we need to experience

thing ourselves to learn the things properly.

Md Yahya Towsif (2013380630):

From the whole project calculating the predetermined overhead rate

and calculation of manufacturing overhead was very hard and I found it
very interesting. Later I got to know how small company works with
their product and how they control their production. There are various
costing method and I had to identify that methods which was
interesting. Overall this project was a little bit hard but very interesting.

Nabiha Tahsin Rinita (2132465630):

I learned how small businesses manage their products and interact with
them using absorption costing method. It was intriguing for me to
identify the costing method they used among the many different types of
costing methods. I learned about how absorption costing method works.
I found this project to be fairly tough and compelling at the same time.
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Abdullah Al Hossain Mehedi (2132617630):

This was one of the most interesting project of my life time. I

got to know how little and big companies really works what are
their strategies and what are ways of gaining maximum profit. I
got to know the actual way of adjusting the labor and their cost.
At the end of the day it was a great project indeed with loads of
field work.

Recommendations:

1. https://www.scribd.com/document/242339694/
Raw-Materials-for-Coffee-Shop#
2. https://l.facebook.com/l.php?u=https%3A%2F
%2Fwww.newswire.ca%2Fnews-releases
%2Fsecond-cup-reports-highest-full-year-profit-
in-four-years-847007340.html%3Ffbclid
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%3DIwAR2Em9nLqSRt7rEEfm2gk8gsoIPi738a6
vDaLdiT_4voi3mmL3olzzJgzD0&h=AT1Dlpf6U
8u-hHooRyWuAiDA06nUbXscRcxepTHC-
NVsDYx6kTZ3b_x3hAA6Q8gDuskJNOqZQdsB
EFcJEddVQFmeOVZ7VCKb0BLirypJMzLGQw
4JvtAAPJoL7mgqsofN--rNYA
3. https://www.facebook.com/secondcupbangladesh/
4. https://www.google.com/search?
q=cost+profit+calculator&rlz=1C1SQJL_enBD10
16BD1017&oq=cost+profot&aqs=chrome.2.69i5
7j0i13i19i512l9.9260j0j7&sourceid=chrome&ie=
UTF-8
5. https://www.google.com/search?
q=break+even+point+analysis&rlz=1C1SQJL_en
BD1016BD1017&oq=break+even+point&aqs=ch
rome.2.69i57j0i19i512l9.13930j0j7&sourceid=ch
rome&ie=UTF-8

THE END
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