Yogi Bubble Tea Market Research and Analysis

This document provides a market research and analysis for starting a yogurt-based bubble tea outlet targeting college students. It includes cost information, market trends, and sales projections for the first three months. The document also includes a daily production budget, weekly raw material purchase budget, cash budget, and pro forma income statement.

School of Business
Diploma in Business Administration
Diploma in Accountancy
Management Accounting 2
BBD2204
January 2021 Semester
Assignment
Student No: ____0125963_________
BBD2204/Jan2021 Page 1 of 12
INSTRUCTIONS:
1. All assignments must be prepared using Microsoft Excel spreadsheet for
calculation and Microsoft word.
2. All assignment must attached the case and questions for submission
3. Due date will be announce when the assignment questions are handed
out.
4. E-mail softcopy with the file name format
Student #_Assignment_BBD2204_Jan2021
5. Total 40 marks.

Yogi Bubble Tea
You recently graduated with a business diploma. During your tenure as a student, you were
one of the many college students who were die-hard fan of the “Bubble Tea” trend. You and
most of your college friends consume bubble tea at least twice a week.
The “Bubble Tea” market has grown at an exponential rate the last two years. One of the
reasons is that it was perceived as a healthy lifestyle drink compare to ice blended coffee
served in lifestyle café.
Recently studies shown that the high sugar content in bubble3 tea product out-weight the
health benefit of tea in bubble tea drinks. These have caused concerns to many die-hard
bubble tea customers. Recently, there is a sharp decline in the growth rate of bubble tea
market. Many bubble tea outlets closed down and many more are expected to close in the
future.
Recently, you and family went on vacation to Australia and you observed that the bubble
tea trend is alive and thriving, especially the yogurt based bubble tea, which is supposed to
be healthier than regular milk/sugar based bubble tea.
Right after graduation you are contemplating to start a small yogurt-based bubble tea outlet
targeting college students. You decided to do some market research and the main focus of
your research is to find out whether the business can survive, at least in the short run (1
year). Due to lack of funds, you decided to rent all the equipment and not to invest “hard
cash” in capital expenditure (equipment):
The following were forecasted cost and market information gathered during your research.
Cost information:
Fixed operating expenses per month:
Monthly rental RM4,000
Helper salary RM3,000
Depreciation expenses RM1.500
Electricity expenses RM 500
Wireless internet RM 150
Advertising expense RM 500
Budgeted raw material per unit*:
Tapioca balls RM 1.00
Tea leaves RM 0.75
Yogurt RM 1.25
Sweetener/flavour RM 1.00
Packaging/cup RM 0.50
Market information:
 Bubble tea trend is slowing down due to
the negative publicity about the
excessive sugar used.
 Economy seems to be picking up
 Current and new potential customers
might be looking for a healthier
alternative.
 The business expects customers are
willing to pay RM9.00 for a cup healthier
yogurt based bubble tea.
BBD2204/Jan2021 Page 2 of 12

Further research indicated that expected sales for the first three months of business are as
follows:
January February March April May June
Expected sales (units) 1,200 1800 2400 ? ? ?
Other Information:
 The first three (3) months sales are expected to growth at an abnormal rate due to
new unique offering in the bubble tea segment. Sales are expected to slow down
and sales are expected to grow at a constant rate of 10 percent from April onwards.
Required:
A. Determine the monthly expected sales for the period January to June. (1 mark)
January February March April May June
Expected sales (units) 1,200 1800 2400 2640 2904 3194.4
B. Due to fluctuating expected sales, you are concern that you will run short of products for
sale on a daily basis. To ensure every customer will never be turn away due to shortage
of finish goods, you plan to produce 10% more each day than the daily expected sales.
Assume 30 day month and you open for business every day.
Prepare a daily production budget (only need to do the first 2 days and last 2 days of the
month) for the period January to June. (4 marks)
JANUARY
Day1
Production Budget
Units
Budgeted sales 40
Desired ending finished goods inventory (40x10%) 44
Total units needed 84
Less: Beginning finished goods inventory -
Budgeted production 84
BBD2204/Jan2021 Page 3 of 12

Day2
Production Budget
Units
Budgeted sales 84
Desired ending finished goods inventory (40x10%) 92.4
Total units needed 176.4
Less: Beginning finished goods inventory (40)
Budgeted production 136.4
JANUARY
Production Budget
Units
Budgeted sales 1200
Desired ending finished goods inventory (1200x10%) 120
Total units needed 1320
Less: Beginning finished goods inventory 1200
Budgeted production 120
FEBRUARY
Production Budget
Units
Budgeted sales 1800
Desired ending finished goods inventory (1800x10%) 180
Total units needed 1980
Less: Beginning finished goods inventory (120)
Budgeted production 1860
MARCH
Production Budget
Units
Budgeted sales 2400
Desired ending finished goods inventory (2400x10%) 240
Total units needed 2640
Less: Beginning finished goods inventory (180)
Budgeted production 2460
APRIL
BBD2204/Jan2021 Page 4 of 12

Production Budget
Units
Budgeted sales 2640
Desired ending finished goods inventory (2640x10%) 264
Total units needed 2376
Less: Beginning finished goods inventory (240)
Budgeted production 2136
MAY
Production Budget
Units
Budgeted sales 2904
Desired ending finished goods inventory (2904x10%) 290.4
Total units needed 3194.4
Less: Beginning finished goods inventory (264)
Budgeted production 2930.4
JUNE
Production Budget
Units
Budgeted sales 3194.4
Desired ending finished goods inventory (3194.4x10%) 319.44
Total units needed 2874.96
Less: Beginning finished goods inventory (290.4)
Budgeted production 2584.56
C. Prepare a weekly raw material purchase budget: (4 Marks)
BBD2204/Jan2021 Page 5 of 12

 In order to maintain freshness of the final product, raw material purchases on a weekly
basis.
 Need to maintain 10% (weekly sales need) raw material inventory at all time.
Raw Material Purchase Budget
January February March
$ $ $
Sales units
Raw material per unit
1200
$4.5
1800
$4.5
2400
$4.5
Sales need $5400 $8100 $10800
Min end inventory (x10%) 540 810 1080
Total need 5940 8910 11880
Less: beginning inventory (540) (810)
Purchase 5940 8370 11070
Sales revenue ($9.00) $9.00x1200 = $10800 $9.00x1800=$16200 $9.00x2400=$21600
D. Prepare weekly raw material purchase payment schedule/budget: (2 Marks)
 Payment will be paid a week after the purchase date.
Sales
$
Desired
ending
Beginning Purchase Payment
Week 1 2700 270 0 2970
Week 2 2700 270 270 2700 2970
Week 3 2700 270 270 2700 2700
Week 4 2700 270 270 2700 2700
Month
2 Week
1
4050 405 270 4185 2700
Week 2 4050 405 405 4050 4185
Week 3 4050 405 405 4050 4050
BBD2204/Jan2021 Page 6 of 12

Week 4 4050 405 405 4050 4050
Month
3 Week
1
5400 540 405 5535 4050
Week 2 5400 540 540 5400 5535
Week 3 5400 540 540 5400 5400
Week 4 5400 540 540 5400 5400
Month
4
Week 1
5940 594 540 5994 5400
Week 2 5940 594 594 5940 5994
Week 3 5940 594 594 5940 5940
Week 4 5940 594 594 5940 5940
Month
5 week
1
6561 656 594 6623 5940
Week 2 6561 656 656 6561 6623
Week 3 6561 656 656 6561 6561
Week 4 6561 656 656 6561 6561
Month
6 week
1
7187 719 656 7250 6561
Week 2 7187 719 719 7187 7250
Week 3 7187 719 719 7187 7187
Week 4 7187 719 719 7187 7187
E. Prepare a cash budget on a monthly basis. (5 Marks)
Additional information:
 Started with initial $1,000 cash
 Raw material purchase payment schedule – purchases are paid in full before the next
purchase.
 100% of sales are cash sales
 At any one time your business must have a cash balance of $500
 If there is a cash deficit, the company can borrow the bank at 12% interest per year.
Interest will paid on a monthly basis and interest incurred for the month will be paid
the following month.
BBD2204/Jan2021 Page 7 of 12

January February March
$ $ $
Beginning cash 1000 500 500
Cash from sales
$10800x100%=
$10800
$10800+(16200x100%) =
27000
$27000+($21600x100%) =
$48600
Total cash available 11800 27500 49100
Total cash needed
Expenses 9650 9650 9650
Purchases 5940 8910
Interest
Minimum cash needed 500 500 500
Total cash needed (10150) (16090) (18340)
Surplus/(deficit) 1650 11410 30760
Financing:
Payback 1650 11410 30760
Loan
Effect
End cash balance 500 500 500
F. Prepare monthly Pro forma Income Statement for the period January to March. (4 Marks)
Pro forma Income Statement – all three months combine
Pro Forma Income Statement
$ $
Sales revenue 48600
Less: Cost of goods sold (5400 X $9.00) (24300)
Gross Profit 24300
Less: Other expenses
monthly bills ($7500 X 3) 22500
BBD2204/Jan2021 Page 8 of 12

Profit/ (loss)
(22500)
1800
G. The following are actual and budgeted sales and cost information for the last 3 months,
January, February, and March.
January February March
Actua
l Budgeted Actual Budgeted Actual Budgeted
Actual sales (units) 1400 1200 1900 1800 2400 2400
Monthly rental 4000 4000 4000 4000 4000 4000
Waiter salary 3000 3000 3000 3000 3000 3000
Electricity expenses 510 600 510 600 510 600
Wireless internet 250 250 250 250 250 250
Advertising expenses 500 500 500 500 500 500
Raw Materials:
Tapioca balls 1450 1200 2100 1800 2500 2400
Tea leaves 1000 900 1400 1350 1820 1800
Yogurt 1800 1500 2300 2250 3050 3000
Sweetener/flavour 1300 1200 1700 1800 2100 2400
Packaging/cup 600 600 850 900 1100 1200
Total costs 5400 6150 8100 8350 10800 10527
i. Prepare flexible budget for the month of January, February, and March and calculate the
cost variances of each cost items. (2 marks)
JAN FEB MAR
budget
ed
Actu
al
Varian
ce
Budget
ed
Actu
al
Varian
ce
Budget
ed
Actu
al
Varian
ce
Units
produce
d
1200 1400 200 1800 1900 100 2400 2400
Direct
material
cost
5400 6150 750 8100 8350 250 10800 1057
0
(230)
Overhea
ds
8350 8260 (90) 8350 8260 (90) 8350 8260 (90)
Total 14950 1581
0
18250 1851
0
21550 2123
0
BBD2204/Jan2021 Page 9 of 12

ii. According the March performance report in part (i), what are the possible causes of the
favourable/unfavourable cost variances. Recommend appropriate corrective actions to
prevent further cost issues. (2 marks)
In order that variance analysis is of any use, it is essential to precisely determine
causes of variances so that management may initiate action to rectify an unfavourable
variance.
Some of the possible causes of this variance:
Change in market price
Change in delivery cost
Inefficient buying
Untimely buying
H. Based on the budgeted costs per month:
i. Calculate the break-even quantity per month. (1 mark)
BEQ = $9650
$9.00 - $4.5
= $9650
$4.5
= 2144 units
ii. Calculate the monthly unit sales required that will generate a before tax profit of $1,000
monthly. (1 mark)
= $9650 + 1000
$4.5
= 9572 units
iii. Marketing research indicated for the month of April, overall unit sales will increase by
50% if the company implement sales promotion offering customers one (1) free drink for
every four (4) purchase at current price of $9.00. The free units are considered as unit
sold. `
(4 marks)
a) Calculate the new break-even units.
BEQ = $14475
$9.00 - $6.75
BBD2204/Jan2021 Page 10 of 12

= 6433 units
b) If expected sales, with sales promotion, for April is 2,000 units, do you recommend go
ahead with the sales promotion? Why? Support your decision by comparing income
before and after.
I do not recommend to go ahead with the promotion as the expected sales without the
promotion is 2640 units for the month April
iv. You planned to add an additional item to you current product offering, a green tea cake.
You expect for every three (3) cup of bubble tea sold, 1 piece of green tea cake will be
sold.
Below are additional estimates if the green tea cake is launch:
Green tea cake selling price $7.00 a piece
Green tea cake variable cost per unit $3.00/piece
Incremental/additional fixed costs $2,000
a) Calculate the combine break – even quantity for both products. (3 marks)
Product Bubble tea Cake Total units
Expected sales (units) 1200 400 1600
Sales mix 1200/1600 400/1600
Sales mix (%) 75% 25%
BEQ (Combine products) = TFC
WACMU
= $9650 + $2000
$3.4 + $1
= $11650
$4.4
= 2648 units
BBD2204/Jan2021 Page 11 of 12
Product Bubble tea Cake
$ $
Selling price 9.00 7.00
Less: Variable cost per unit (4.5) (3.00)
Contribution margin per unit 4.5 4.00
Sales mix % 75% 25%
WACMU $3.4 $1

b) How many units of bubble tea drinks and cakes to break-even respectively?
(2 marks)
BEQ for Bubble Tea = 2648 units x 75%
= 1986 units
BEQ for Cake = 2648 units x 25%
= 662 units
BBD2204/Jan2021 Page 12 of 12