VARGHESE'S CHAI COFFEE

THREE years ago, Varghese Thomas completed his degree in accounting. The economy was in a
depressed state at that time, and Varghese managed to get an offer of only ₹200,000 per year as a
bookkeeper. In addition to its relatively low pay, this job had limited advancement potential. Since
Varghese was an enterprising and ambitious young man, he declined this offer and started a business of
his own.

He was convinced that because of changing lifestyles, a drive-through coffee/tea establishment would be
profitable. He was able to obtain backing from his parents to open such an establishment close to the IT
park area in town. Varghese named his business The Chai Coffee and decided to sell only two types of
drinks tea (chai) and coffee. As Varghese had expected, The Chai Coffee was very well received. Within
three years, Varghese had added another outlet north of town. He left the day-to-day management of
each site to a manager and focused his own attention on overseeing the entire enterprise. He also hired
an assistant to do the record keeping and selected other chores.

Discussion Questions:

1. What factors can be expected to have a major Impact on the success of The Chai Coffee?
2. What major tasks does Varghese have to undertake in managing The Chai Coffee?
3. What are the major costs of operating The Chai Coffee?
4. Varghese would like to monitor the performance of each site manager. What measure, or measures,
of performance should he use?
5. If you had suggested more than one measure, which of these should Varghese select if he could use
only one?
6. Suppose that last year, the original site had yielded total revenues of ₹14,60,000, total costs of
₹12,00,000, hence a profit of ₹2,60,000. Varghese had judged this profit performance to be
satisfactory. For the coming year, Varghese expects that due to such factors as increased name
recognition and demographic changes, the total revenues of this site will increase by 20 percent to
$17,52,000. What amount of profit should he expect from the site?