new business module

ESTIMATING INCOME, COST AND PROFIT 91
The following box shows how Berthe’s total costs are calculated.
Note that the direct costs are based on the assumptions
she made when she estimated her income. Also note that it is
assumed that both rent and electricity have to be paid for
12 months as it is unlikely that the landlord cares that Berthe
is not open in November and it is likely that Berthe will keep
the refrigerator running.
Berthe’s tearoom – case study, part 2, answers (see Hand-out 35)
Based on her calculations, Berthe came up with the costs below.
Direct costs
Berthe knew that she would have to calculate her “normal” months and the peak months of July
and August separately as she estimated that the respective sales would differ significantly.
Month: Normal
Item Quantity Cost Total
Tea 640 cups (16 x 40 cups) $4 per 40 cups 64
Juice 1,160 bottles $5 5,800
Total 5,864
Month: Peak (July and August)
Item Quantity Cost Total
Tea 1,280 cups (32 x 40 cups) $4 per 40 cups $128
Juice 2,320 bottles $5 $11,600
Total $11,728
Her total direct costs amount to (9 months x $5,864) + (2 months x $11,728) = $76,232.
Indirect costs
Item Quantity Cost Total
Newspapers 6 days x 4 weeks x 11 months x 5 papers = 1,320 papers $4 $5,280
Cleaning 4 weeks x 11 months = 44 weeks $50 $2,200
Rent 12 months $4,000 $48,000
Electricity 12 months $200 $2,400
Fridge maintenance 2 times a year $750 $1,500
Licence Annual $500 $500
Total $59,880
The total annual indirect costs per year amount to $59,880.
Depreciation
Equipment Purchase price Life-time in years Annual depreciation
Refrigerator $10,000 5 $2,000
Total $2,000
Depreciation amounts to $2,000 per year.
Thus, Berthe calculates her total annual costs at $76,232 + $59,880 + $2,000 = $138,112.