PROJECT FEASIBILITY STUDY TABLE OF CONTENTS
I. EXECUTIVE SUMMARY II. PROJECT BACKGROUND AND HISTORY III. ECONOMIC ASPECT 1. DEMAND AND MARKET 2. SALES FORECAST AND MARKETING IV. TECHNICAL ASPECT
1. PRODUCTION 2. DETERMINATION OF PLANT CAPACITY 3. MATERIAL INPUTS 4. PROJECT ENGINEERING A. PRELIMINARY PRELIMINARY DETERMINATION DETERMINATION OF SCOPE OF THE THE PROJECT B. TECHNOLOGIES, PROCESSES AND EQUIPMENT C. CIVIL ENGINEERING WORKS
V. MANAGEMENT MANAGEMENT VI. MANPOWER MANPOWER VII. FINANCIAL ASPECT TOTAL INVESTMENT COST 1. WORKING CAPITAL REQUIREMENT 2. FIXED ASSET 3. INVESTMENT INVESTMENT COSTS 4. FINANCIAL PROJECTIONS
PROJECTED INCOME STATEMENT PROJECTED BALANCE SHEET PROJECTED CASH FLOW STATEMENTS PRODUCTION COST AND EXPENSES PROJECT FINANCING FINANCIAL EVALUATION VIII. SOCIAL DESIRABILITY DESIRABILITY ASPECT
APPENDICES
I. EXECUTIVE SUMMARY
Mrs. Diego Sy, Sole Proprietor and General Manager of DIEGO ‟s Home Bake Products has requested our Consulting Firm to conduct a Project Feasibility on a proposed project of establishing a Chocolate Manufacturing Business in San Vicente City. The planned location of the proposed project is at Nasaug, San Vicente City. The proposal is focusd on production of chocolate confectionery which refers to pre-packed chocolate bars, bites and candies made primarily from cocoa powder and/or butter, mixed with milk and sugar. The planned chocolate manufacturing firm will be another line of business of DIEGO‟s Homebake Products. DIEGO‟s Homebake Products is a merchandising business with perishable cake and baked products as their primary product. Mrs. Diego Sy would like to add a new line of business which is a Chocolate Manufacturing and hired our services to determine the feasibility of the proposed project. Project Feasibility Team is composed of five (5) members. These members will work hand in hand to obtain the relevant data and information necessary to assess the profitability and viability of the project. The team were able to come up with some assumptions that we thought would be true regarding this project. 1. Since chocolates in general are widely famous and patronized by people in all class, we assumed that the project would be feasible. 2. There is a large demand of chocolates locally. 3. The business will break even or generate a little income on its first year of operations. 4. Chocolates are hard to manufacture. 5. Cost of production is high. 6. There would be a big impact on the community especially on the economic aspect. In order to know whether all our assumptions are correct, we conducted series of activities to corroborate this assumptions. One of these activities is the conduct of surveys. A survey was conducted in the municipalities of Masamo, San Juan, San Martin, Northern Cadiz and the City of San Vicente to determine whether there would be a favorable response to the introduction of Chocolate Manufacturing in San Vicente City. Questionnaires were distributed to
theses areas. The target of these questionnaires is to give the team data and information regarding the marketability of chocolates in general, the preferred brand of the consumers, the preferred price ranges of the product, the possible reason why one does not like chocolates, other purposes in buying chocolates, the kind of advertising the customer prefers with regards to buying of chocolates and the willingness of the consumers to buy a San VicenteVi cente- made chocolates. The team also performed some research and interviewing activities form resource persons that would enlighten some queries about the proposed project. The team established some estimates and made computations using the data gathered during the research activities. Projected Financial Statements were also made to determine the effects of the proposed project to the proponents, society and community. In the conduct of the study, the team made guidelines of interpreting the data. One of these is providing a 10% room for error. This means that the study can tolerate a 10% degree of mistakes in the manner of answering our questionnaires. This also means that if the degree of error is still within that tolerable percentage, the results of the survey can still be relied upon. Our surveys acquired information about some of the important questions with regards to the project. that of the 300 chosen correspondents, only 278 answered seriously the questionnaires on the particular question: Are you willing to buy locally manufactured or San Vicente- made chocolates? There are 86% or 238 respondents answered „Yes”. And in this particular question, we made a standard measure that if the number of respondents who answered “YES” exceeds 70% of the whol e sample, the project will be considered favorable. Projected Income Statement also shows an income of P 382,686.31 on it‟s the first year of operation which is quite big already for a newly established business. The research also established that the preferred piece range of chocolate candy bars is from P 15- P30. The consumers prefer that the product would be advertise in the television. Toblerone, Hersheys, Cadbury and Snickers are really salable to the public in this order with regards to their preference. In this study, we were able to know that the cost of producing chocolates is not that high in contrast to aour assumptions. In fact, to produce 100,000 units of chocolates would only cost the business P 1,130,510.00. Waste are mostly in organic and harmless to the public. With all these findings, the PFS team concludes that the proposed project of the chocolate manufacturing business in San Vicente City is feasible and profitable.
II. PROJECT BACKGROUND AND HISTORY
Name Project Promoter: Address of Pomoter: Pomoter:
DIEGO‟S HOMEBAKE PRODUCTS Center Island, San Vicente City,
Project Orientation: Proposal on establishing of the 1 st Manufacturing of Chocolate Business in San Vicente City with the use of cocoa beans coming from cacao plant. Chocolate, derived from the Aztec (Central America) word xocoatl (cocoa-based drink), is made from the fruit of the cocoa (Theobroma cacao) tree. Columbus first brought cocoa beans to Europe out of curiosity. Today, it is one of the most exotic foods the whole world enjoys. Chocolate confectionery refers to pre-packed chocolate bars, bites and candies made primarily from cocoa powder and/or butter, mixed with milk and sugar.
Market Orientation:
Planned distribution of the manufactured chocolates would be domestic, particularly in local places, such as San Vicente City, Masamo, San Juan and San Martin Northern Cadiz. Target Market includes individuals with age ranging from 11 to 60 years old. We opted to include in our target market the kids and the senior citizens because normally kids like chocolates a lot. The senior citizens on the other hand, though may not buy chocolates for themselves, may patronize the product as gifts or “pasalubong ” to their grandchildren.
III. ECONOMIC ASPECT
1. Demand and Market
In the Asia Pacific region, chocolate sales are estimated at $3.9 billion. The Philippines accounts for less than 3% ($111 million) of the total (Van Melle, Phils., 1998). These already included sales in duty-free shops. Moreover, in the 1997 Family Income and Expenditure Survey, spending on chocolates and candies reached P3 billion with regular buyers from middle to highincome urban families. The purchases usually surge during the holiday (i.e. Christmas) season. Imports of chocolate confectionery were volatile during 1996 to 2000, peaking at 5,810 tons ($24.2 million) in 1997 and lowest at 3,670 tons ($15 million) in 2000. Philippine Trade of Chocolate Confectionery, 1996-2000 (Volume in tons, Value in US$'000 - FOB for exports, CIF for imports) IMPORTS EXPORTS Y Volume Value Volume Value ear 1
4,035
11,696
1,411
4,485
1
5,810
24,200
1,356
4,273
1
3,767
14,452
1,265
3,903
1
5,542
20,060
161
524
2
3,673
15,025
315
898
996 997 998 999 000 SOURCE: National Statistics Office
The US was the major source in 2000 with a 60% volume share. Other sources were Australia and Malaysia.
These are the historical data in relation to the proposed project domestically and abroad. As of now, there are no actual data that can be shown with regards to our local market here in San Vicente since there has never been any manufacturing business in the city to date. But to support some of our estimates in determining the demand, the team conducted some surveys and inquiries. These include the giving of questionnaires, interviewing sales staff and inventory in charge, and researching on the internet. Our surveys acquired information about some of the important questions with regards to the project. One of these questions is a tool in determining the demand of chocolates that will be manufactured in San Vicente. This particular question is, Are you willing to buy locally manufactured or San Vicente- made chocolates? Out of the 300 chosen correspondents, only 278 answered seriously the question. There are 86% or 238 respondents answered „Yes”. The result was used to determine the demand by multiplying 86% of the population of the target areas which is 185,757. We were able to get an estimate demand of 159,751. In this note, the team is able to know that there is a favorable demand of the proposed product. However this information may be hypothetical and may not be totally relied upon. So, we used the data we researched on the internet about the chocolate sales in the Philippines on the year 2000 which is i s US$111 Million. We also used the census data of National Statistics Office that shows the population of the Philippines and the City of San Vicente and Municipalities of Masamo, San Juan and San Martin, Northern Cadiz. We extract the ratio of the population these for areas to the whole population of the Philppines and multiplied it with the 2000 Chocolate sales in the Philippines. The computation can be seen below: Chocolate Sales in Philippines (US$111MXP41)
P
4,551,000,000.00
Target Areas San Vicente City
71,105
Masamo, Northern Cadiz
32,974
San Juan, Northern Cadiz
51,462
San Martin, Northern Cadiz
30,216
Total population of the target Areas
(a)
185,757
Total Philippine Population
(b)
76,498,735
Ratio [ (a) / (b)] Estimated Demand of Target Areas in Pesos
0.24% P
11,050,903.09
With the above data, we were able to get an estimated demand in pesos. It is also and ideal to get the demand in quantity. But basing on the data, it would be improper for us to do so, because there is no exact information regarding the price ranges composing these demand in pesos. And this figure does not represent specifically the target market that the proposed project planned to cater. The target market is determined to be individuals with ages ranging from 11 to 60 years old. But this data already give an answer as to whether there is a favorable existing demand of chocolates which is the primary product of the proposed project. 2. Sales Forecast and Marketing
The anticipated competition are usually the US-imported chocolates in the market that include Hershey's Kisses, M&M milk chocolates and peanuts, Mars, Three Musketeers, Snickers, Milky Way, and Babyruth. Imports from Australia and Switzerland are Cadbury and Lindt and Toblerone, respectively. Also in the market are Malaysian products such as Van Houten, Gandour's Pik-One and Sahara. Those from Saudi Arabia include Tofiluk, Safari and Soudan. In the Philippines our key players are Universal Robina Corp. One of the largest and leading food companies in the country. URC Branded Consumers Foods Division manufactures and distributes chocolates along with its instant coffee products, snack foods, candies, biscuits and ready-to drink beverages. Commonwealth Foods, Inc. About 60% of sales come from Manila and the remaining from the provinces. Serg's Products, Inc., the country's oldest and Southeast Asia's first modern chocolate confectionery manufacturer. At present, its chocolate processing plant has a capacity of 7 tons/day. Goya, Inc. Formerly the Philippine Cocoa Corporation, it is now a subsidiary of Nestle Phils. Inc. It manages the confectionery business of the latter since 1997. It has a wide target market and offers varied products, both imported and local. However, there exist an issue and a key concern which is the high input costs, i.e., sugar and cocoa beans, which are imported, and packaging materials. The industry heavily relies on imports since supply is scant. The increasing influx of imported chocolates is also a growing challenge to the local industry. Further, these are aggravated by poor transport infrastructure, which raises logistic costs. In a country with relatively low incomes, these can dramatically affect demand. In order to address these concerns, the industry must improve product quality through product development, new investment and increase in production efficiency. Thus far, there have been efforts to adopt computer aided-design and -manufacturing processes including bar coding, thus, enhancing productivity.
One of the competitive edges of the local manufacturers is the ability to cater to the large low-income segment (about 70% of the 15 million households) with lowpriced retail packs. Thus, expanding product lines, improving distribution networks along with the growing young population will drive demand in the years to come. However, growth will be moderate in the next five years due to slow economic growth. At the same time, the industry industry competition will continue to be intense. The planned sales promotion for the product would include a variety of means such as free taste activities, advertising on televisions such as San Vicente Cable Television, Radio broadcasting on DYDM and publications in different newspapers in the province. Our promotional activities will also include distribution of flyers and posters. The project forecasted a P 362,686.31 estimated annual sales revenues and an estimated annual cost of sales promotion and marketing of P 159,000.00.
IV. TECHNICAL ASPECT
2. Production A. Product and By- Products The proposed project intends to produce the chocolate bars products in San Vicente City with of the same quality with that of top selling selli ng chocolate brands in the Philippines and all over the world. The project plans to produce 100,000 units of chocolate bars in their first year of operations. Along with the production of chocolates, a very useful by-product is consequently created. These by-products are the shells of the cacao seeds which can be sold as animal feeds.
B. Waste Disposal It is estimated that the amount of waste generated in manufacturing of chocolates is of minimal and tolerable amount and the cost would only be at a maximum of P50,000 annually. The wastes determined are the shells that are already damaged and cannot be sold as animal feeds and the bottles of milk used in the production.
2. Determination of Plant Capacity The proposed project intends to use a 800 square meters plant area catering the different areas in production including a warehouse in which raw materials are stored and another storage room in which finished products will be placed. This plant area
houses different types of equipment, machines and facilities used in production. The plant is well- equipped and sufficiently ready to cater all the necessary processes and procedures that is inherent in manufacturing of chocolates.
3. Material Inputs
a. Raw Materials The basic raw material that is very important in the production of chocolates is the cacao bean. This must come in sacks of cacao beans to make chocolate products. Cacao beans are very important in chocolate making process because from these beans arise chocolate butter and chocolate liquor which are the main ingredients in making chocolates.
b. Ingredients/Compon Ingredients/Components ents One of the ingredients is milk which can be a whole milk. The choice of what type of milk to be used is up to the manufacturer. The next one is sugar. Butter and Vanilla and different kinds of nuts can be added to make different flavors and variety of chocolate products.
c. Auxiliary Materials Materials Custom-made packaging materials, company- named cartons, boxes and cases, are among the auxiliary materials that the plant maintains.
d. Factory Supplies Included in our factory supplies are the production suits, gloves, hair-caps, boots, lab gowns, towels, face-masks, trays, productions utensils such as spatulas, rubbers scrapers, chairs, tables, lockers, hand sanitizers, toiletries, drinking mineral water and paper towels.
e. Utilities The plant will already have Electrical Connection with independent transformer, Water Connection, Landline Telephone Connection and Internet Broadband Connection at the plant manager‟s office.
4. Project Engineering
A. Preliminary Preliminary Determination of Scope of the Project Project The proposed project is mainly concerned in the manufacturing of chocolates which will be sold in the City of San Vicente and the Municipalities of Masamo, Masamo, San Juan and San Martin, Northern Cadiz. Though, it is been specified that the above- mentioned places are the target area for the project‟s selling activities, the pro ject is open for other places that will patronize the product. Chocolates are very popular and marketable to the customers due to its extraordinary taste. The combination of bitterness and sweetness gives the product a more interesting characteristic. Almost all people know what is chocolate. But, only few people know how it is made.
How to Make Chocolates The first cacao trees grew wild in i n the Amazon basins in north Brazil. Today cacao is cultivated in tropical climates. The cacao tree likes climates within 10 to 20 degrees of the Equator. The trees need warm, humid weather and loose rich soil. They also like shaded sunlight with little or no wind. The largest growers of the cacao tree are Brazil, Ghana, the Ivory Coast, and Nigeria. There are 20 to 60 cacao beans inside the pod. Three main varieties of cacao beans are grown today. The criollo bean is a native of Central America. Approximately 10 to 15 percent of the cacao trees are crioll o. These trees are small and hard to grow. The forastero cacao is much easier to grow and makes of 70 percent of all cacao grown. The forastero is more bitter than the criollo. The third type of cacao bean is the trinitario. It is a cross between the criollo and the forastero. About twenty percent of the cacao beans produced are forastero.
Although cacao trees grow about sixty feet in the wild, plantation owners trim them to about 20 feet so that workers can reach the pods at harvest time. Since the cacao tree prefers shade banana trees, rubber trees, or coconut palms are planted beside the cacao tree in the orchard. The pods take five to six months to develop. When the pods ripen they turn from green or yellow to orange or red. Cacao trees can be harvested twice a year. Workers use a machete to cut the pods off the trees. They are placed on banana leaves in large wooden boxes. They are left to ferment for several days. Criollo beans usually ferment for two to three days while forastero and trinitario beans ferment three to seven days. During fermentation the beans become darker and wrinkled and lose their bitter taste. After fermentation the beans are sun-dried for several days. They are then packed in burlap sacks and shipped to factories. When the beans arrive at the chocolate factory they are sorted and cleaned. The beans are roasted at 250 to 350° degrees for thirty minutes to two hours depending on the type of bean. They are roasted in large revolving drums. The cacao beans give off a wonderful aroma during the roasting process. After roasting the beans are winnowed. This is the process that removes the outer shell. The shells are sold as animal feed. The inner nib is then crushed then heated to melt the cocoa butter and ground to a thick paste. This paste is called chocolate liquor, but contains no alcohol. If the nibs are to become Dutch-processed cocoa they are treated with an alkali. If left untreated with alkali the chocolate liquor becomes cocoa powder. To make cocoa power a large press extracts all but 10 to 25 percent percent the cocoa butter from the chocolate liquor. The remaining cake is then then ground and and sifted through fine nylon, silk, silk, or wire mesh. Low fat cocoa contains between 10 to 13 percent fat where high-fat contains 15 to 25 percent. Low-fat cocoa is usually used for cocoa drinks. The high-fat cocoa is used to flavor desserts. To make unsweetened or "baking" chocolate the chocolate liquor is molded and solidified. Dark chocolate is made by combining chocolate liquor with sugar, cocoa butter, and vanilla. To make milk chocolate, chocolate liquor is combined with cocoa butter, sugar, and milk solids or powder. White chocolate is made without chocolate liquor. It is the cocoa butter that gives it the chocolate flavor. Dipping chocolate is made with more cocoa butter than regular eating chocolate. Chocolate is mixed with 0.3 to 0.5 lecithin. This helps it mix more easily and makes the chocolate smoother. Another type of chocolate is gianduia. It is a blend of chocolate and roasted hazelnuts.
Once the ingredients are combined the chocolate mixture goes through a refining process. It is kneaded between large steel rollers. This make the mixture smooth. Next is it conched. During this process the liquid mixtures is heated and continuously mixed, ground, and stirred. High quality chocolate is conched for several days and lower quality chocolate are conched for only a few hours. After conched the chocolate chocolate is tempered. This This is the process that gradually gradually raises then lowers and raises the temperature to a “set degrees” . Now the chocolate is ready to be molded into chocolate bars.
B. Technologies, Processes and Equipment
In touring a chocolate factory, one is particularly impressed by the close controls maintained throughout operations. Work is carried out in an atmosphere of scientific exactness and nothing is left to chance. Precision instruments regulate temperatures, stabilize the moisture content of the air, and control the time intervals of manufacturing operations and other items necessary to achieve quality results. The equipment of a factory is heavy, massive and complex. Often representing an investment of many millions of dollars, there are literally tons of equipment that the cocoa beans must pass through on their way to becoming chocolate.
Automation Besides the equipment already described, the industry employs a number of fascinating machines to do the work of shaping and packaging chocolate into the familiar forms that we see every day on store counters. Some of the shaping machines perform at amazing speeds, squirting out jets of chocolate that solidify into special shapes at a rate of several hundred a minute. Other machines do a complete job of wrapping and packaging at speeds which human hands would find impossible. Separate from the chocolate industry but of interest nonetheless, is the enrobera machine employed by many candy manufactures in the creation of assorted chocolates. The enrober receives lines of assorted centers (nuts, nougats, fruit or whatever desired filling) and showers them with a waterfall of liquid chocolate. This generally covers and surrounds each center with a blanket of chocolate. Yet other confectionery machines create a hallow-molded shell of chocolate which is then filled with a soft or liquid center before the bottom is sealed with chocolate.
The mechanized nature of the entire chocolate-making process contributes greatly to the industry's high standards of hygiene and sanitation. To keep check on these standards, chocolate factories constantly run quality tests, which show whether the process is proceeding within the strict limitations designed for each product. These tests cover an amazing range-there are tests for the viscosity of chocolate, for the cocoa butter content, for acidity, for the fineness of a product and, of course, tests for purity and taste of the desired finished product. All chocolate manufacturers, it is important to note, must meet the standards as set forth in the rules and regulations of The Food and Drug Administration and BFAD. These govern manufacturing formulas, even to the extent of specifying the minimum content of the chocolate liquor and milk used. They also impose strict rules regarding the flavorings and other ingredients that may be used.
Secrecy Where methods of manufacturing are concerned; however, manufacturers have a completely free hand and have developed individual variations from the "pattern." Each manufacturer seeks to protect his own methods by conducting certain operations under an atmosphere of secrecy. Modern technology, in this respect, is reminiscent of the day of the Spanish monopoly. Today's "secrets," unlike those of old, include many small but important details which center around key manufacturing operations. No chef guards his favorite recipes more zealously than the chocolate manufacturer guards his formulas for blending beans or the time intervals he gives to his conching. Time intervals, temperatures and proportions of ingredients are three critical factors f actors that no company wants to divulge. di vulge. In line with this, the proposed project also observes the same manner of secrecy regarding its own formulas and manners of making its own chocolates.
Sanitation A visit to a chocolate factory certainly will not reveal any secrets; however, the visitor will be impressed by the gleaming appearance that such a place has. Chocolate manufacturers conduct all operations under sanitary, laboratory-like conditions in keeping with the purity of the products they make. They follow a daily regimen of machine maintenance and general housekeeping that is not exceeded in the food industry.
Cleanliness is, indeed, the universal byword of the chocolate industry. Chocolate factories not only have careful programs for industrial sanitation and for the personal hygiene of their employees, but they are continually striving to improve their programs.
A Plant within a Plant Plant Technicians use laboratories to analyze every phase of chocolate preparationfrom raw materials to finished products. They test samples for the market as well as experimental products produced in a company's pilot plants. These pilot plants consist of miniature equipment which duplicates a company's entire chocolate making process and those of some of their customers, as well as providing sample quantities of any product desired. Chocolate manufacturers are making increasing use of pilot plants in conjunction with their laboratory research programs to develop interesting new products and find new ways of making the old ones.
1. Proposed Equipment
Production Equipment
1. 2. 3. 4.
Roasting Equipment Winnowing Machine Milling Machine Pressing Equipment
5. Refining Equipment 6. Conching machine 7.Tempering Equipment 8. Moulding Machine
Auxiliary Equipment Equipment
1. Giant Exhaust Fans 2. Cooling Machine (like freezer) for Maintaining the Temperature of Storage 3. Srollers
Service Equipment
1. Delivery Truck
2. Rough Estimate of Investment Cost on Equipment
The company is expected to spend a total amount of P 1,700,000 for the acquisition of the necessary equipments for the proposed project. Shown below is the cost of each classification of equipments: 1. Production Equipment 2. Auxiliary Equipment 3. Service Equipments
-
P 1,300,000.00 1,300,000.00 P 200,000.00 200,000.00 P 200,000.00 200,000.00
C. Civil Engineering Works
1. Rough Layout of Plant Area
G N I D L I U B / T N A L P R E T E M E R A U Q S 0 0 8 E H T F O N A L P R O O L F
m . q s 0 4
2. Rough Estimate of Investment Cost of Civil Engineering Works
The place of production is located at Nasaug, San Vicente City. The proponent of this project owns a 1,000 square meter area lot. It is been planned to erect a building of 800 square meters floor area. Shown below are the site preparation and estimated construction materials with a rough estimates on their costs. 1. EARTHWORKS 36 cubic meter Bask Fill 10 cubic meter Gravel Fill Subtotal
P
12,600.00 3,500.00 16,100.00
2. Concrete/Masonry Concrete/Masonry Works: 195 bags Portland cement 22 cubic meter fine sand 20 cubic meter gravel ¾ 120 pieces 12mm & Bet. Rar 260 pieces 10mm & Bet. Rar 30 kilos #16 tie wire Subtotal 3. Carpentry Works 160 pcs. 2 x 2 x 2‟ ceiling 50 pcs. 4 x 4 x ¼‟ marine plywoo d 5 pcs. 2 x 6x 8 „ door Other materials Subtotal 4. Hardware & Finishing hardware
35,100.00 8,800.00 11,000.00 18,960.00 30,680.00 1,350.00 105,890.00
22,400.00 21,000.00 1,600.00 13,850.00 58,850.00
Primary hardware material 5 pcs. 1.2m x 2 x 6 Purlim 5 pcs. 3/16 x 2 Angle Bar 36 pcs. 1.2m x 2 x 4 C. Purlim 14 pcs. 3/16 x 1 Angle Bar 5 pcs. 3/16 x 1 Flat Bar 20 kilos Welding Rod 3 gallons Metal Premier 2 sets Door Lockset Subtotal
54,287.97 2,750.00 2,200.00 11,880.00 3,780.00 900.00 1,500.00 1,440.00 1,400.00 80,137.97
5. Renestration 360 4 x 24 blades 24 pairs @ 15 B Jalousie Frame Subtotal
12,600.00 4,200.00
6. Forms/ Scaffoldings 100 pcs.2 x 3 x 12 Coco lumber 100pcs. 2 x 2 x 12 Coco lumber Subtotal
5,100.00 3,400.00
Total Cost of Materials Labor Contractors Design/Supervision Gross Total
16,800.00
8,500.00
P
Rounded off to the Nearest peso Multiplied by Total
286,277.97 286,277.97 114,511.19 34,353.36 8,588.34 433,730.86 433,730.86 444,000.00 444,000.00 2
P
888,000.00
V. MANAGEMENT
VI. MANPOWER MANPOWER
A. Production
Since the business uses modern technology of producing the chocolates and there are only 120,000 units are estimated to be sold in its initial stage of o peration, the management may employ only thirteen (13) total number of workers who will carry out the production requirements. Table I below shows the estimated cost of production employing the services of 13 workers only. It is shown that production is being segregated into four (4) major areas. These are the Roasting, Winnowing, Mixture Processing and Molding and Packaging Areas.
Table I. Estimate of Production Cost: Wages ESTIMATE OFPRODUCTION COST: WAGES Department Variable Costs (project component
wage categories (no. of workers)
No. Description 1 Personnel(s) in Cocoa Bean Roasting Area 2 Machine Operator cocoa bean peeling and grinding 3 Personnel(s) in Choco Mixture Processing Area 4 Personnel(s) in Chocolate Molding and Packaging Total No. of Workers Working Hours per Day Working Days per Week Hours per Year
Fixed Costs wage categories (no. of workers) 2 1 4 6 13 20 5 5,280
Wages per Year Surchage (%) Wages per Year
561,000
Total
561,000 561,000
Table II. Estimateof Production Cost: Salaries
ESTIMATE OFPRODUCTION COST: SALARIES Department (project component Salary Categories (No. of Staff) No. Description A B C D E Total 1 Supervisor/Quality Control 1 1 2 Accounting Personnel 1 3 Inventory in Charge 1 1 4 Warehouse/Inventory Warehouse/Inventory Clerk 1 1 5 Sales Staff 1 1 6 Purchasing Staff 1 1 7 Maintenance Personnel 1 1 8 Driver 1 1 9 Security 3 3 Total No. of Staff 1 2 3 5 10 Working Hours per Day 8 8 8 8 32 Man-months per year 12 12 12 12 48 Salaries per Month 10,000 8,000 6,000 5,000 29,000 Surcharge (%) Salaries per Year 120,000 192,000 216,000 300,000 828,000 Total 120,000 192,000 216,000 300,000 828,000
VII. FINANCIAL ASPECT
A. Total Investment Cost
5. Working Capital Requirements Requirements
The study shows that in order to establish a chocolate manufacturing business here in San Vicente, the proponents must have a working capital requirement of P 5,000,000.00. This working capital requirement is composed of P 2,000,000.00 initial capital investment of the owner and P 3,000,000 fund from a 5- year bank loan with 12% interest per annum.
6. Fixed Asset
As a new line of business of DIEGO”S Homebake Products which is a manufacturing business, it is very necessary that a separate location of land property must be allotted for the establishment of production site for the making of chocolate candy bars. A building that would serve as a factory for chocolate processing is also needed. It is estimated that a 1,000 square meter area lot and an 800 square meter floor area building would be sufficient for the project. High technology equipments which are customed-made for production would also be purchased to ensure the quality of products produced.
7. Investment Investment Costs
Land (1,000 square meter) Building (800 square meter floor area) Production Equipment Office Equipment Furnitures and Fixtures TOTAL
P
898,000 888,000 1,700,000 43,000 27,000
P
3,566,000
FORMULA METHOD ADDITIONAL FINANCING NEEDED ( AFN ) MAY BE COMPUTED AS FOLLOWS:
Additional Funds Needed
=
Required increase in assets
Spontaneous increase in liabilities
-
-
Increase in retained earnings
Where: Required Increase In assets
=
change in sales
x
current assets (present) sales (present)
Spontaneous Increase In liabilities
=
change in sales
x
current liabilities (present) sales (present)
Increase In retained Earnings
=
earnings after taxes
-
dividend payment
COMPUTATION OF INCOME TAX
If net income is over P250,000 but not over P500,000, TAX will be:
P50,000 + 30% of excess over P250,000 If net income is over P500,000 TAX will be: P125,000 + 34% of excess over P500,000
4. Financial Projections
A. Projected Income Statement
DIEGO'S CHOCOLATE MANUFACTURING MANUFACTURING PROJECTED INCOME STATEMENT For the Year Ended December 31, 2008
Sales Less: Cost of Goods Sold Raw Materials Inventory Direct Labor Factory Overhead Cost of Goods Manufactured Ending Inventory Cost of Goods Sold Gross Profit Less: Operating Exepenses Salaries and Wages SSS Contribution Electricity and Water Telecommunications Supplies Expenses Advertising Fuel and Oil
P P
3,300,000.00
440,510.00 561,000.00 129,000.00 1,130,510.00 1,130,510.00 84,300.00 1,046,210.00 1,046,210.00 2,253,790.00 2,253,790.00 828,000.00 147,752.88 87,610.00 11,940.00 48,000.00 159,000.00
56,000.00
Depreciation Expenses Interest Expense Taxes and Licenses Total Operating Expenses
212,520.00 360,000.00 16,280.81 1,927,103.69 1,927,103.69
Operating Income Other Income
326,686.31 36,000.00
Net Income
P
362,686.31
B. Projected Balance Sheet
DIEGO'S CHOCOLATE MANUFACTURING PROJECTED BALANCE SHEET As of December December 31, 2008
ASSETS Current Assets Cash Accounts Receivable Receivable Inventory Supplies
P
731,100.42 495,000.00 495,000.00 84,300.00 25,000.00
Total Current Assets Property Plant and Equipment Land Building, net Production Equipment, net Office Equipment, net Furnitures and Fixtures Total Property Plant and Equipment
P
1,335,400.42 1,335,400.42
898,000.00 852,480.00 1,530,000.00 1,530,000.00 38,700.00 24,300.00 3,343,480.00 3,343,480.00
P TOTAL ASSETS
LIABILITIES & CAPITAL
4,678,880.42
Liabilities Loans Payable
P
2,400,000.00 2,400,000.00
Capital E. Sy Capital, Beginning Add: Net Income Income E. Sy Capital, End
P
2,000,000.00 2,000,000.00 278,880.42 278,880.42 2,278,880.42
P TOTAL LIABILITIES AND CAPITAL
4,678,880.42
C. Projected Cash Flow Statements
DIEGO'S CHOCOLATE MANUFACTURING M ANUFACTURING PROJECTED STATEMENT OF CASHFLOWS For the Year Ended December 31, 2008
Cash Flow from Operating Activities Cash Inflows Cash Received from Sale of Goods Cash Received from Other Income Cash Outflows: Payments for taxes Payments to suppliers Payments to Employees Net Cash from Operating Activities Cash Flows from Investing Activities Purchase of Property Plant and Equipment Net Cash Flow from Investing Actitivities Cash Flows from Financing Activities Cash Inflow Acquisition of Loan Cash Outflow Payment of Interest from Loan Payment of Loan Principal Amount Net Increase in Cash Cash at the Beginning of the Year
P
2,805,000.00 36,000.00
83,805.89 1,534,340.81 975,752.88
P
2,841,000.00
2,593,899.58 247,100.42
3,556,000.00 (3,556,000.00)
3,000,000.00
360,000.00 600,000.00
2,040,000.00 (1,268,899.58) 2,000,000.00
P Cash at the End of the Year
731,100.42
5. Production Cost and Expenses
Estimated Costs and Expenses 100,000 units
Raw Materials Cacao Beans Sugar Milk Nuts Raw Materials Direct Labor Factory Overhead Production Cost Other Estimated Cost Advertising and Packaging Packaging Factory Cost Light and Water-Factory Fuel and Oil Administrative Salaries and Wages SSS Contributions Light and Water-Office Telecommunications Supplies Expenses Interest Expenses Taxes and Licenses Depreciation Subtotal Total Cost
156 sacks of cacao beans @ P145/sack 960 kilos of sugar @ P40/kilo 7,500liters @ P49/liter 7 sacks @ 1,850
P
13 workers with 5,280 labor hours worked/year P
22,620.00 37,440.00 367,500.00 12,950.00 440,510.00 561,000.00 129,000.00 1,130,510.00
159,000.00 56,946.50 56,000.00
112,946.50
828,000.00 147,752.88 30,663.50 11,940.00 48,000.00 360,000.00 16,280.81 212,520.00
1,655,157.19 1,927,103.69 P
3,057,613.69
B. Project Financing The project is estimated to require a P 5,000,000 capital structure composed of 2, 000,000 initial capital of Ms. Diego Sy, the proprietor and 3,000,000 obtained from a bank loan with 12% interest per annum.
C. Financial Evaluation
1. Pay Off Period
The bank loan of P3,000,000.00 with 12% interest every year payable with uniform annual payments of P 600,000.00 has a pay off period of 5 years.
2. Simple Rate of Return
Rate of Return on Sales
=
Net Income Net Sales
=
362,686.31 3,300,000.00
=
10.99%
=
Fixed Cost Contribution Margin
3. Break Even Point
Break Even Point in units
=
77,400.00 18
=
4,300.00
To Check:
Sales (P30 x 4,300 units) = Fixed Cos + Variable Cost [77,400 + (12 x 4300) = Break Even VIII. SOCIAL DESIRABILITY DESIRABILITY ASPECT
129,000 129,000 0
The primary objective of this study is to determine the feasibility and viability of a proposed plan to establish a Chocolate Manufacturing in San Vicente City. Part of this study is to be able to shed light to the proponent of this project as to risks, cost expenditures, benefits, marketability marketability and profitability of the product. After interpreting the data gathered and concluding that the proposed project is feasible, we made some financial projections that show a favorable outcome to the proponent. It is been estimated that after a year of operation with the new business venture, DIEGO‟s Homebake P roducts can enjoy a material increase in their income in the amount of P of P 382,696.31 in the first year of operations only. only . Moreover, this project does not only give a great deal of benefits to the proposing parties but to the society as well. With the establishment of a new line of business, which is the chocolate manufacturing, DIEGO ‟s Homebake Products can contribute to the improvement of the economy locally by somehow increasing the employed people in the society. In the first year of operations, the new line of business would already generate a favorable income material to the owner of the project. Usually companies would only break even in their first year of operations. But the proposed chocolate manufacturing has already shown its profitability. It is expected that with a favorable and profitable manufacturing operations, DIEGO s‟ would increase their production of chocolates. This implies that more and more personnel and workers are needed. Thus giving a venue for people to get employed and earn their money. If there are more people earning, this means that taxes to be returned to government would also increase. If there is an increase in production, there are more products to sell, more income is generated. This means that the business is contributing to the local economy.
Local farmers will be encouraged to cultivate cacao trees which have been neglected for years. The study estimated that there would be income generated with their by products and waste. By products generated during production are the shells of cocoa beans that can be sold as animal feeds. It is projected that there are 500 kilos of animal feeds created in the process of making chocolates. Those who are racing animals would have a local access to suppliers of feeds that are very affordable for a price of P 6.00 per kilo. Wastes generated during production are mostly organic, so this may not give a problems to the environment, the community and the health of the residents near the site of production. This chocolate manufacturing business will be the first ever manufacturing business not just in San Vicente but the whole Southern Northern Cadiz.
