Technical Study

This study discusses the process by which the proposed business intends to

provide its product to its customers. It determines the technical requirements for

designing and producing the concept. The researchers explained the production process

and its sequence, all the needed machineries and equipment, building and its location,

floor plan/layout, capacity and scheduling, waste disposal, utilities and other operating

cost, production cost, quality control and other forms of internal control of the proposed

plan.

Production or Service Process

Production process is a system that combines raw materials into finished products.

In Mushroom Powder Production, the processes involved are as follows:

Purchasing of Materials. The main ingredient which is oyster mushroom will be

ordered to a specific supplier. Dried Oyster mushroom will be supplied by a supplier
from Lipa, Batangas. Furthermore, secondary ingredients i.e., dried thyme, salt, red
pepper flakes and black pepper will be supplied by a supplier from Recto.
Commented [COD1]: How? Can you discuss with me how
do you order? What are the forms being secured to make a
purchase? Do you have list of authorized suppliers?
1. Who orders?
2. Who performs 3-way matching?

Commented [COD2]: After purchasing, where do you

Preparation. Ingredients and other necessary equipment will be prepared by the store these? Is there receiving clerk who validates your
purchases?
production workers. Production workers will measure the dried oyster mushrooms and Commented [COD3]: Who is responsible for this
function?
other raw materials at a weighing scale before it will be transferred in the processing area.
Commented [COD4]: Can you enumerate the step by
step preparation that you are referring to?
This process will take about 15 minutes. Proper equipment will be used to prepare the
Commented [COD5]: How much? Can you quantify?

ingredients for a better process of production. Commented [COD6]: What are these? Can you be
specific?
Commented [COD7]: What are these? Can you discuss?

45
 Execution. After measuring and transferring the ingredients both primary and Commented [COD8]: Who is responsible for this
function?
secondary ingredient will be grinned in a grinding machine for approximately 90 Commented [COD9]: Can you specific with these primary
and secondary ingredients?
minutes. It will be transferred in the Mixing machine to mix all products accordingly for Commented [COD10]: What are these?

about 30 minutes. Afterwards, it will be processed in the granulation machine for the last

step that will take for about one hour.

Packaging and Sealing. The seasoning will be packed in eight grams labeled Commented [COD11]: Who is responsible for these
activities?
wrap using a packaging machine and it will be put in a box containing 10 dozen (120

pieces). This process will take about 120 minutes. Commented [COD12]: What is your basis in this standard
packaging?

Cleaning and Storing. After the production process, the workers will clean the You might want to consider this:
For instance, Magic Sarap, your indirect competitor, they
have few sizes for their packaging. Example: 8grams, 20
production area for 30 minutes and the finished products will be transferred in the storage grams, 100 grams, or even kilograms.
Commented [COD13]: Who is responsible? Please be
room to be stored in the steel racks for 15 minutes. specific.

Delivery. Mushroom seasoning will be delivered to resellers in the target market: Commented [COD14]: Who is responsible? Please be
specific.
Aplaya, Balibago, Caingin, Dila, Dita, Don Jose, Ibaba, Kanluran, Labas, Macabling,

Malitlit, Malusak, Market Area, Pooc, Pulong Sta. Cruz, Santo Domingo, Sinalhan, and

Tagapo. A delivery multi-cab will be used to deliver the products every Wednesday and

Friday 4:30-5:30 pm.

46
 PREPARATION
Raw materials are measured before transferring it to the production
area.
( 15 minutes )

EXECUTION
Ingredients will be grinned, mix alltogether before granulating to achieve
the granuled product.
( 180 minutes )

PACKAGING AND SEALING

The products will be packed in a 8 grams wrap.
( 90 minutes )

CLEANING AND STORING

The production workers will clean the production area and the finished
producs will be stored.
( 45 minutes )

DELIVERY
The products will be delivered in the target markets.
( 60 minutes )

Figure 4B-1. Production Process Flow Commented [COD15]: Why “Purchasing”, your first step
is not included here?

Equipment, Machinery, Furniture and Fixture

The equipment and other facilities that will be used in the business are all

mechanically operated. Because the business is just starting with a small industry,

machineries and other equipment will be purchased at a low cost but of high quality. In

capitalizing the cost, it was agreed that all machineries, equipment and furniture’s that are

costing ₱3,000 will go directly to expense and will not be part of the depreciable assets.

The equipment, furniture, and fixtures and facilities to be used are presented in

Appendix 4B-1 and identified below:

Weighing Scale. This is used to measure the raw materials needed to produce the

desired taste and quality of the product.

Grinding Machine. This is to use to grind the oyster mushroom.

Mixing Machine. This is used to mix all the necessary ingredients needed to

produce the product.

47
 Packaging Machine. This is used to pack the seasoning and the desired weight

will automatically be applied.

Dry Granulator Machine. This is used to densify the powder to form into

granules.

Office Table. This will be used in the office for the office worker.

Office Chairs. This is used to be comfortable while doing the office works.

Sofa. This will be used in the office room for accommodation of guests.

Tables. These tables will be used in production and some will be at the employee

lounge.

Computer, Laptop and Printer. This will be used for office purposes and

specifically by office workers.

CCTV Cameras. This will be to monitor the inside and outside activities for

security purposes.

Air Conditioning Unit. This is used to ensure the welfare and convenience of the

production and office workers and it will also preserve the raw materials in the storage

area.

Steel Rack. This is used for the storage of the finished products.

Chairs. This will be used by production workers during their vacant hours.

Lockers. This will be used for keeping personal stuffs of the employees.

Electric Fan. This is used in the employee lounge for the convenience of the

workers.

Exhaust Fan. This is used to pull excess moisture and unwanted odors out in the

production area.

Water Dispenser. This is used for easy access of water for drinking purposes.

48
 Cash Box. This will be used to properly keep the cash in-flows and out-flows of

the business.

Calculator. This will be used at the office for all necessary computations.

Stapler. This will be used by office workers to staple important documents in the

office.

Wall Clock. This will be the time guidance of the workers and will be acquired.

Telephone. This will be used for communication purposes.

Fire Extinguisher. This is used to ensure the safety of the company in case of

fire.

Blinds. This will be used in the window of the office.

Power Generator. This will be used as alternative source of electricity so that the

production will continue even in case of power interruption.

Delivery Multi-Cab and Motorcycle. This will be used as delivery vehicle of the

mushroom powder produced.

The list and the costs of the equipment, and furniture and fixtures are presented in

Table 4B-1.

49
Table 4B-1
List of Equipment, Machinery, Furniture and Fixture
Unit Total Estimated Annual
Description Quantity
Cost Cost Life Depreciation
Grinding Machine
₱22,950 2 5 ₱9,180
₱45,900
Mixing Machine
49,950 1 5 9,990
49,950
Granulation Machine
67,500 1 5 13,500
67,500
Packaging machine
37,500 1 5 7,500
37,500
CCTV Cameras (1 set)
18,500 1 5 3,700
18,500
Office Table
3,045 1 10 305
3,045
Sofa
10,195 1 10 1,020
10,195
Office Chair
4,689 3 10 1,407
14,067
Computer Set
21,300 2 5 8,520
42,600
Laptop
18,995 1 5 3,799
18,995
Printer
4,995 1 5 999
4,995
Wall Air Condition
29,487 2 5 11,795
58,974
Steel Rack (4 Layer)
5,300 4 10 2,120
21,200
Steel Locker (12 Doors) 5,600 1 5,600 10 560
Power Generator
58,900 1 5 11,780
58,900
Delivery Multi-cab
210,000 1 5 42,000
210,000
Delivery Motorcycle
36,950 1 5 7,390
36,950
Total
₱605,857 ₱135,565
₱704,871
Source: SM Appliance, All Homes, Hanabishi Appliances, Robinsons Appliances,
Suzuki Automobile Company, OLX.ph, Alibaba Company, Frontier

50
 The table below shows the costs of small equipment, furniture and fixtures.
Table 4B-2
List of Small Equipment, Furniture and Fixtures
Description Unit Cost Quantity Total Cost
Camel 16” Stand Fan ₱1,225 2 ₱ 1,225
Calculator 200 1 200
Cash Box 599 1 599
Ceiling Fan 1,080 2 2,160
Exhaust Fan 1,200 1 1,200
Fire Extinguisher 1,449 4 5,796
Plastic Chairs 199 8 1,592
Office Cabinet 2,450 2 4,900
Table (long) 1,100 3 3,300
Table (Short) 700 3 2,100
Steel Basin (Big) 249 5 1,245
Blinds 650 6 3,900
Wall Clock 495 3 1,485
Water Dispenser 1,400 2 2,800
Weighing Scale 1,545 1 1,545
Telephone 595 2 1,190
Total ₱14,056 ₱34,302
Source: ACE Hardware, All Homes, SM Appliance, D.I.Y Hardware, Wilcon Depot,
Hanabishi Appliances, Robinsons Appliances, National Book Store.

Building

The researchers chose to lease a commercial space in Brgy. Balibago, Sta. Rosa

Laguna. The building has two floors with seven divisions which will be used for office Commented [COD16]: Can you disclose the lease term
and lease contract disclosure here?
room, production area, storage one and two, comfort rooms, utility room and employees

lounge. There are comfort rooms for male and female workers and the other is for the

office workers. A parking space will be available for the employees as well as for the

51
delivery vehicles the business has. The proposed business to be leased is a 100 sq. meter

area. The rent expense will be ₱50,000.00 monthly will be divided 1:3 to administrative

and production. The purpose of dividing the rent expense is to minimize the cost of

production.

The proposed building will be under renovation to meet the desired floor plan.

The building’s estimated useful life due to renovation is 20-25 years. The researcher

decided to use the straight-line method to make it easier to compute. The total renovation

cost, picture of the building and the lease agreement will be presented in Appendix 4B-2, Commented [COD17]: I cannot see the renovation cost.

Appendix 4B-3, Appendix 4B-4. Commented [COD18]: Is this operating or finance lease?
Why are you capitalizing your renovation?

Location Commented [COD19]: I cannot see the lease contract.

Commented [COD20]: Can you quantify the exact
The mushroom powder production is located in Brgy. Balibago, Sta. Rosa City, proximities?

Laguna. It is located beside Super 8 Grocery Warehouse. The researchers considered

advantages on this site that would contribute significantly to the company’s operational

needs. First, the proposed site of the business is accessible to transport the goods easier.

Second, most of the target re-sellers are near in the vicinity area. And third, it will be

easily known to the public because Balibago is known to people.

The location of the proposed business is far from the competitors so the level of

competition will be minimized. The location is also good for marketing because it is

along the road and can be easily recognize by the market. The Philippine map, Laguna

Map, Santa Rosa Map and Vicinity Map of the area is presented in the Appendix 4B-5,

Appendix 4B-6, Appendix 4B-7 and Appendix 4B-8.

Layout and Floor Plan

The total lot area is 100 square meters with two floors. The space is a

commercial building and is ready for renovation. The building will have a total of seven

52
divisions. These will include the office of the manager and office workers, employees

lounge, comfort rooms, two storage room, utilities room and the production area. On the

first floor, in front of the entry way going in the production area will be a storage room

for the finished products. In front of the storage room will be another storage room for

raw materials. Beside the raw materials storage room will be the utilities room and in

front will be the production area. Two comfort rooms assigned for the production

workers will be beside the utilities room. On the other hand, the office and the

employees’ quarter will be on the second floor with one comfort room for the office

workers. In front of the office is the employees lounge area. The parking area will be

located outside of the building. Detailed Layout is presented in Appendix 4B-9.

The position of the equipment, furniture and fixture is illustrated in Figure 4B-2.

COMFORT ROOMS

PRODUCTION AREA UTILITY

ROOM

First Floor STORAGE

ROOM

STORAGE ROOM

STAIRWAY

PARKING AREA

53
Figure 4B-2. Layout and Floor

MANAGERS
ROOMS

OFFICE
ROOMS

COMFORT
ROOM
Second Floor

EMPLOYEE
S LOUNGE

STAIRWAY

Capacity and Scheduling

The business will operate from 8:00-12:00 in the morning and 1:30-5:30 in the

and holidays. The work schedule of the proposed business is presented in Table 4B-3.

Table 4B-3
Schedule of Mushroom Powder Production

54
 BREAK IN
DAY TIME ACTIVITIES
MINUTES
Preparing and measuring the raw
8:00-8:15 15 minutes
materials
Transferring of raw materials from
8:15-8:20 the storage area to the grinding 5 minutes
section.
8:20-9:50 Grinding of raw materials 90 minutes
Transferring of grinned ingredients
9:50-9:55 from grinding section to the mixing 5 minutes
section.
9:55-10:10 Break Time 15 minutes
Monday to Friday 10:10-10:40 Mixing of the ingredients 30 minutes
Preparation of the mixed ingredients
10:40-10:45 5 minutes
for granulation
10:45-11:45 Dry granulation process 60 minutes
Preparation of the granulated product
11:45-12:00 15 minutes
for packaging and sealing
12:00-1:30 Lunch Break 90 minutes
1:30-3:30 Packaging and Sealing 120 minutes
Storing of Finished Products on steel
3:30-4:00 30 minutes
racks in the storage room
4:00-4:30 Cleaning of Production Area 30 minutes
Wednesday and Friday 4:30-5:30 Delivery 60 minutes
Total Hours 8 Hours

The researchers assumed that the business will operate at 60% of the maximum

capacity for the first five years. The business also considered 1% for any spoilage of

goods that the production may incur. The researchers assumed that the one percent

spoilage is based on the total yearly material cost and will be considered as a loss in year

end. The price of the product will increase for 0.5% in the next four years. The

researchers computed the operating capacity of the business considering the time

available, employees and the equipment. The business operates for eight hours a day

and it takes 4 hours per batch and the output per batch is 5,250 units then the total

capacity per day is 10,500 units (8 hours ÷ 4 hours = 2 batches x 5,250 units = 10,250

55
units per day). Then total capacity in quantity per week with five working days a week,

will be 52,500 units (10,500 x 5 days) or 427 boxes (10 dozens/8 grams per pack), and

the total capacity per year will be 2,730,000 units (52,500 x 52 weeks in a year) or 22,750

boxes (10 dozens/8 grams per pack). If the selling price per unit is ₱840 per box, then

total capacity in peso per year will be ₱19,110,000. The computation is resented in Table

4B-4 below.

Table 4B-4
Projected Business Capacity in Quantity and in Peso
Yearly
Weekly Operating
Yearly Operating
Capacity Capacity Weekly
Capacity Yearly Capacity Capacity in Peso
Year in in Qty. per Capacity in
in Qty. in Peso per box
Quantity box Peso per box (60%)
per box
per box
(60%)
2019 729 37,917 22,750 ₱612,500.00 ₱31,850,000.00 ₱19,110,000.00
2020 729 37,917 22,750 615,562.50 32,009,250.00 19,205,550.00
2021 729 37,917 22,750 618,640.31 32,169,296.25 19,301,577.75
2022 729 37,917 22,750 621,733.51 32,330,142.73 19,398,085.64
2023 729 37,917 22,750 624,842.18 32,491,793.44 19,495,076.07

Source: Appendix 4B-10

Waste Disposal Commented [COD21]: Did you secure sanitary permit? If

so, please disclose.
The proposed business will have a minimal waste from office, comfort room and

production area. Garbage collector will be roaming around the vicinity of the proposed

business every Thursday to pick up the garbages. The collection of garbage is a free

service of Sta. Rosa municipality, therefore, the company will not pay any cost. Hence, Commented [COD22]: I think Sta. Rosa is a City?

the business will pay voluntary donation of ₱400.00 to the municipality of Sta. Rosa Commented [COD23]: What is your basis of this
amount?
Ciry, Laguna.

Utilities and Other Operating Costs

56
 The business will incur other cost such as utilities and other operating expense

that are necessary to the business operation. Utilities are composed of electricity, water,

telephone, mobile phone, internet, waste disposal and fuel expenses. The computed

budget for electricity is ₱ 21,000, ₱ 1,500 for the water, ₱ 1,400 for the telephone, ₱ 500 for the

mobile phone, ₱ 1,900 for the internet, ₱ 400 for the waste disposal and ₱ 2,500 for the fuel. This

expenses are assumed to increase 1% every year. Indicate the utilities that the business will Commented [COD24]: What is your basis?

need to incur such as electricity, water, telephone, internet. Estimate the monthly and Commented [COD25]: ??

annual cost for each. You will include this in the income statement that will be prepared

in the Financial Study. 75% expense will be allocated to the product as an inventoriable Commented [COD26]: ??
Commented [COD27]: What is your basis?
cost. The computation for utilities, general supplies and other operating expense are

presented in Table 4B-5, Table 4B-6, Table 4B-7.

Table 4B-5
Utilities Expense 2019
Monthly Annual Allocated to Allocated to
Description
Cost Cost Production Operations
Electricity ₱ 19,000 ₱ 228,000 ₱171,000 ₱57,000
Water ₱ 1,500 ₱ 18,000 ₱ 13,500 ₱ 4,500
Telephone ₱ 1,400 ₱ 16,800 ₱ 12,600 ₱ 4,200
₱
Mobile Phone
500 ₱ 6,000 ₱ 4,500 ₱ 1,500
Internet ₱ 1,600 ₱ 19,200 ₱ 14,400 ₱ 4,800
₱
Waste Disposal
400 ₱ 4,800 ₱ 3,600 ₱ 1,200
Fuel ₱ 2,500 ₱ 30,000 ₱ 22,500 ₱ 7,500 Commented [COD28]: Fix formatting. Apply to all.
Total ₱ 26,900 ₱322,800 ₱242,100 ₱80,700

Source: Meralco, Laguna Water District, PLDT

Table 4B-6

57
List of General Supplies

Description Unit Cost Quantity Total Cost

Apron ₱100 20 ₱2,000
Broom 75 2 150
Dust Pan 45 2 90
Mask/Box 65 3 195
Gloves/Box 80 3 240
Hair Net 30 20 600
Boots 250 20 5,000 Commented [COD29]: Formatting
Pail 200 4 800
Dipper 50 4 200
Trash Bin (Big) 200 2 400
Trash Bin (Small) 145 6 870
Hand Soap 150 6 900
Mop 200 4 800
Delivery Receipts 50 3 150
Sales Invoice 65 3 195
Total ₱ 1,705 ₱12,590

Source: Lazada Philippine, The SM Store, Watsons, NewStar

Table 4B-7

58
Operating Expenses 2019
Monthly Annual Allocated to Allocated to
Description
Cost Cost Production Operations
Salaries and Wages (4C) ₱82,432.00 ₱989,184.00 ₱614,496.00 ₱374,688.00
Employee Benefits (4C) 47,161.31 568,935.74 381,817.39 187,118.35
Training and Development
(4C) - 24,500.00 13,625.00 10,875.00
Building Rental (4B) 50,000.00 600,000.00 450,000.00 150,000.00 Commented [COD30]: Please review the lease contract.
Depreciation (4B) What are the terms? Do you have deposit. Or.. Will the rate
26,900.00 322,800.00 242,100.00 80,700.00
be the same for how many years?
Utilities (4B) 11,297.08 135,565.00 101,673.75 33,891.25
Commented [COD31]: What do you depreciate?
Repairs and Maintenance
(4B) 7,000.00 84,000.00 63,000.00 21,000.00 Commented [COD32]: Basis?
Property Insurance (4B) 2,500.00 30,000.00 22,500.00 7,500.00 Commented [COD33]: Basis?
Travel and Transport (4B) 8,000.00 96,000.00 - 96,000.00 Commented [COD34]: Basis?
Advertising and Promotion
(4A) 2,500.00 30,000.00 - 30,000.00 Commented [COD35]: Basis?
Office Supplies (4B) 2,500.00 30,000.00 - 30,000.00
Taxes and Licenses (4C) 10,000.00 - 10,000.00 Commented [COD36]: Basis?
Charitable Contributions
(4F) 400.00 4,800.00 - 4,800.00 Commented [COD37]: Basis?
Small Equipment and
Furniture (4C) - 29,402.00 - 29,402.00
Pre-Operating Costs (4C) - 38,950.00 - 38,950.00
Miscellaneous 1,500.00 18,000.00 - 18,000.00
Total ₱242,190.40 ₱3,012,136.74 ₱1,889,212.14 ₱1,122,924.60
Source: Appendix 4B-11

Production Cost
The production cost per batch will be composed of Direct Materials, Direct Labor

and Manufacturing Overhead as shown in Table 4B-8.

59
Table 4B-8
Product Cost per Batch

Qty. Unit Unit Cost Total

Dried Oyster Mushroom 20 Kilogram 500.00 10,000.00

Red Pepper Flakes 9 Kilogram 80.00 720.00
Sea Salt 9 Kilogram 30.00 270.00
Dried Thyme 1 1/2 Kilogram 300.00 450.00
Pepper 2 1/2 Kilogram 70.00 175.00
Total Direct Material 980.00 11,615.00

b. Direct Labor 1,129.74 Commented [COD38]: Basis?

c. Factory Overhead
Qty. Unit Unit Cost Total
Indirect Material-Packaging 5,250 Pieces 1.00 5,250.00
Indirect Material-Box 43 Pieces 3.00 129.00
Total Indirect Material 5,379.00

Indirect Labor 253.98

Depreciation Expense- Equipment 185.96
Per Batch
Utilities Expense 332.10
Rent Expense 617.28
Property Insurance 41.15 990.53
Total Factory overhead 6,809.48

Total Production Cost 24,933.22

Unit Cost (25,081.10/5,250) 4.75

Mark Up (32.19%) (7.00 x 32.19%) 32.19% 2.25 Commented [COD39]: Basis of mark up?
Selling Price per Unit 7.00
Source: Appendix 4B-12

For factory overhead, 75% of all overhead is related to production. The Commented [COD40]: Basis?

researchers estimate the reorder point is when the remaining material is at 20% of the Commented [COD41]: Basis?

total stock. The reordering process will be done once a week. Commented [COD42]: Why? Basis?

Table 4B-6
Projected Annual Production Cost

60
 Direct Direct Factory Total
Year
Materials Labor Overhead Amount
2019 ₱ 3,019,900.00 ₱ 823,582.45 ₱ 2,464,169.69 ₱ 6,307,652.14
2020 3,034,999.50 827,700.36 2,476,490.53 6,339,190.40
2021 3,050,174.50 831,838.87 2,488,872.99 6,370,886.35
2022 3,065,425.37 835,998.06 2,501,317.35 6,402,740.78
2023 3,080,752.50 840,178.05 2,513,823.94 6,434,754.49

Source: Appendix 4B-12

Quality Control Commented [COD43]: How about the cleanliness and

hygiene of those who prepares it?
In order to produce high quality products, a quality control process will be

observed. Because the ingredients to be used are all dried, it is expected to have lower

percentage of spoiled and damaged ingredients. The machineries and equipment that

will be used to produce the product will inspected by its operators before using it to

ensure the quality of the products. The workers in the packaging department will ensure

that the sealing of the products will be executed properly. At the end of the day, workers

will make sure to clean the machines, equipment and other tools that are used during the

production before storing it. The machines and equipment will be maintained and repair.

The cost will be ₱7,000 monthly. Commented [COD44]: What is your basis?

Other Forms of Internal Control

The proposed business will adopt some internal controls to guarantee the

reliability of the financial records, safeguard the assets and to comply with all the

regulations and operate efficiently.

61
 (1) Generating reliable financial accounting information. In order for the business

to become successful, there must be reliable financial accounting information that can be

presented to the possible investors and creditors if the owner plans to expand. The

manager will control all receipts and disbursement of cash and the collection of

receivables, while the secretary will be allowed to record transactions.

(2) Safeguarding fixed assets. The firm will install CCTV cameras in the office

and in production area to ensure the company’s assets and to monitor all the activities of

the workers. A security guard will be also hired for additional protection of the

business.

(3) Complying with applicable laws and regulations. Another secret of making

the business successful is to comply with applicable laws and regulations. The proposed

business will be passing the entire requirements set forth by the government and will be

obeying the rules and regulation that is applicable to the business.

(4) Operating efficiently and effectively. The worker will be compensated fairly

to motivate them to work more. Working efficiently and effectively in the firm is also

one of the secrets in having a successful business. Following the required time to

operate the production and working efficiently and effectively will minimize the cost of

firm. Therefore, all the employees are expected to work in accordance with the business

policies.

62