Refreshing beverages such as fruit shake and smoothies have become the quickest way to beat the heat, especially during dry season. Over the last two years, Pearly Shake has become known as a quench thirst for people living near Galas Market. Claimed to be the only flavored shake business located in the area with its affordable beverages ranging from ₱25.00 for the regular size shake and ₱30.00 pesos for large size shake with a topping of your choice. Pearly Shake offers variety of flavors (in powdered form) such as bubblegum, double-dutch, strawberry, vanilla, chocolate and ube.

According to Ms. Analyn Lim, owner of Pearly Shake, her business makes ₱ 15,000 to ₱17,000 average sales per day.

As what the owner have said “a micro-scale business do not require much investment, an entrepreneur can start his own business with a small capital. Nowadays, customers have high tend to consumption product of milk and sugar but they have few choices to choose from so I set-up Pearly Shake try to create the demand for my customers”.

In addition, Analyn Cheng employs three personnel for her business. She pays them ₱ 250.00 per day inclusive of free breakfast, lunch, and dinner. The establishment is open from 10:00 am to 7:00 pm, Monday to Sunday. Ms. Cheng usually travels from Galas Quezon City to Divisor, once a month to buy powdered shake flavors, straws, plastic cups, sugar, cream, whole milk.

II. OBJECTIVES

• To create a strong product awareness.

• To achieve an increasing number of loyal consumers.

• To maintain a positive, strong growth of the micro-enterprise each year.

III. POINT OF VIEW

This final paper will take the point of view of Pearly Shake’s owner, Analyn Cheng.

IV. STATEMENT OF THE PROBLEM

This paper’s approach emphasizes the importance of CVP analysis and how it ties directly into planning and control processes management must take in order to manage a successful business.

This paper seeks to answer the question: what costing method should Analyn, apply? How can she implement it?

V. GUIDE QUESTION

Using the below information, determine the number of shakes that will need to sell to break even.

DIRECT MATERIAL INGREDIENTS	Small (8 oz. size)	Large (12.oz size)
Condensed Milk (₱ 41. 50 for 300 ML)	20mL or 0.676 fluid ounce	30 mL or 1.017 fluid oz
Sugar (₱500.00 for 15 lb bag = 30 cups)	1/2 cup of sugar	3/4 cup of sugar
Flavorings	.25 per shake	.40 per shake
Specialty Straws	.75 straw	.75 straw
Cups (100 8 oz. cups at a cost of ₱150.00)	---------------------------------------	------------------
Cups (100 12oz. cups at a cost of ₱185.00)	---------------------------------------	----------------
Fixed cost:
Rent : ₱5,000 a month
Cleaning and other miscellaneous supplies	₱2,000 a month
Equipment: Industrial Milk Shake Maker:	₱2,500 per machine X 3 machine = ₱ 7,500
Equipment: Refrigerator : ₱4,500
Licenses and permits: ₱1,050 a year
Owner's salary: ₱180,000 a year
Employees
Three full-time employees: each receiving a daily salary of ₱250.00

BREAK EVEN POINT

The break-even point formula is calculated by dividing the total fixed costs of production by the price per unit less the variable costs to produce the product.

BREAK EVEN POINT IN DOLLARS= SALES PRICE PER UNIT * BREAK EVEN POINT IN UNITS

FIXED COST= 60,000+ 24,000+ 7,500+ 4,500+ 1,050+ 180,000+ 250*365= 368,300

TOTAL BEP= BEP1 + BEP 2

TOTAL BEP= BEP FOR 8OZ UNITS + BEP FOR 12OZ UNITS

VARIABLE COSTS (VC) FOR 8OZ= 20/300*41.5 + 1/60*500 + 0.25+ 0.75 + 150/100 = 13.6

VARIABLE COST FOR 12OZ= 30/300*41.5 + 3/4/30*500 + .4 +.75+ 185/100= 19.65

Assuming sales of 50% for both variants:

Weighted Ave. Sales price Per Unit= 25*.5+30*.5= 27.5

Weighted Ave. Variable Cost per Unit= 13.6*.5+19.65*.5= 16.625

BEP= 368300/ (27.5-16.625) = 33,866.67 units

So, the number of 8oz shakes= 16933.33 units and 12oz= 16933.33 units to break even

BEP in monetary terms= 16933.33* 25+ 16933.33*30= 931333.233

VI. CONCEPTUAL FRAMEWORK AND AREAS OF CONSIDERATION:

The researcher used SWOT analysis in assessing the business’s status.

SWOT	PEARLY SHAKE
STRENGTHS	Strong existing distribution channel Brand strengths and uniqueness
WEAKNESSES	Unavailability of some flavorings. Lack of segregation of duties with regards to the different functions of the business.
OPPORTUNITIES	Brand is attractive to consumers The location of the business is in a crowdie place.
THREATS	Downward Price Pressure Brand susceptibility

The researcher also used Michael Porter’s Five Forces Model of Competition to analyze the competitive environment of the case. Porter explained that there are five competitive forces driving industry competition. Notably his Five Forces model, in which market factors can be analyzed so as to make a strategic assessment of the competitive position of a given supplier in a given market. The five forces that Porter suggests drive competition are:

Existing competitive rivalry between suppliers

Threat of new market entrants

Bargaining power of buyers

Power of suppliers

Threat of substitute products (including technology change)

Essentially, applying the framework to the case, the nature of competition in the food and beverages can be determined using the combined outcome of the competitive pressures generated by the five forces. The owners of the company can have an edge over rival firms if they can use this model to better understand the industry context in which the firm operates.

Figure 1: The Five­ Forces Model of Competition

Threat of New Entry

The threat of new entrants is HIGH because the product is prone to imitation. Therefore, for a new entrant to succeed in this market, it needs to develop strong marketing campaigns and create something that will differentiate from the dominating leaders.

Competitive Rivalry

The rivalry among competing micro-scale businesses as well as large-scale businesses is HIGH because competitors could easily identify Pearly Shake’s strategy. Also, it should be noted that pricing must be taken into consideration.

Buyer Power

The bargaining power is HIGH because customers may switch to other alternatives with regard to price, calorie content and sweetness.

Threat of Substitution

Shakes have many substitutes that pose a considerable threat such as coffee, healthy juices, milkshakes, soft drinks and energy drinks. Each of this products is not that different from Pearly Shake in terms of price and quality. Therefore, the threat of substitute is HIGH.

Supplier Power

The bargaining power of suppliers can be considered low since there are multiples suppliers of powdered shake flavorings. Pearly Shake can switch suppliers easily and tend to make up a large portion of the supplier’s revenue.

COST VOLUME PROFIT (CVP)

In this study, one known factor which influenced the earning of profit is the level of production (i.e., volume of output). Cost-volume-profit (CVP) analysis examines the relationship of costs and profit to the volume of business to maximize profits. There may be a change in the level of production due to many reasons, such as competition, introduction of a new product, trade depression or boom, increased demand for the product, scarce resources, change in selling prices of products, etc. In such cases management must study the effect on profit on account of the changing levels of production. A number of techniques can be used as an aid to management in this respect.

One such technique is the cost-volume-profit analysis. The term cost volume profit analysis is interpreted in the narrower as well as broader sense. Used in its narrower sense, it is concerned with finding out the “crisis point”, (i.e., break-even point) i.e., level of activity when the total cost equals total sales value. In other words, it helps in locating the level of output which evenly breaks the costs and revenues. Used in its broader sense, it means that system of analysis which determines profit, cost and sales value at different levels of output. The cost-volume-profit analysis establishes the relationship of cost, volume and profits.

VII. ALTERNATIVE COURSES OF ACTION

To properly cite the correct costing strategies of the business, Analyn will be addressing a lot of problem of that she is facing. To help her address these issues, the researcher has come with the following alternative courses of actions:

Alternative Courses of Action 1: Analyn can fully improve the cost of Pearly Shake by introducing cost-based pricing where the price includes the cost of ingredients and cost of operating the business.

Cost-based pricing is the easiest way to calculate what a product should be priced at. The owner can do it by:

• include a profit percentage with product cost

• add a percentage to an unknown product cost

• Blend of total profit and product cost