MANAGERIAL ACCOUNTING MBA 541F

CIA-1 Managerial Accounting in small Business

Submitted by,
Amith Kumar-1827004
Ashok-1827005
Vijayalakshmi R-1827051
 India Foodservice Market
The Indian restaurant and food service industry comprises two distinct segments: organised and
unorganised. The organised segment accounts for about 30-35% of the industry, while the
unorganized segment accounts for the remaining 65-70%.The unorganised segment of the industry
consists of individuals or families selling ready to eat food through roadside vendors, dhabas, food
carts, street stalls, etc.
Quick services restaurants (QSRs) and casual and fine dining restaurants account for about 75-
80% of the organised segment, followed by cafes & bakery and pubs, clubs, bars, and lounge
(PBCL) accounting for about 8-10% and institutional catering and kiosks with 13-15% share in the
organised market.

India Foodservice market is forecasted to reach USD 95.75 billion by 2024, registering a CAGR of
10.3% during the forecast period (2019 - 2024).

 The India foodservice sector is one of those vibrantly growing markets that has seen exceptional
growth during the past decade and continues to expand rapidly during the forecast period.
 A high percentage of the young and working population is driving the India foodservice market. The
availability of organized retail space aids the industry to encourage the growth of local and
International brands across different formats.
 The India foodservice market space is attracting significant interest from domestic as well as
international private equity and venture capital funds.

The scope of Indian Foodservice Market includes segmentation of the food services by
Type: Full-Service Restaurants, Quick Service Restaurants, Cafes/Bars and 100% Home
Delivery. Further, the market is segmented by Structure under Chained Outlets and
Independent Outlets.

By Type – Full Service Restaurants, Quick Service Restaurants, Fast Food Restaurants,
Café/Bar, 100% Home Delivery

By structure- Chained Outlets and Independent Outlets

Organised food services is the largest industry in the country’s service sector after retail and
insurance . Bengaluru’s organised food service market, at Rs 20,014 crore, is ranked third highest
among other metros in India. The average expenditure per month per household on eating out is Rs
3,586 in Bengaluru, which is higher than the national average of Rs 2,500. The city has
approximately 42,000 restaurants and employs over one lakh people.
Organised food services is the largest industry in the country’s service sector after retail and
insurance. It is 20 times the size of the film industry, 4.7 times bigger than hotel services and 1.5
times larger than the pharmaceutical sector.
Organised food services is the largest industry in the country’s service sector after retail and
insurance. It is 20 times the size of the film industry, 4.7 times bigger than hotel services and 1.5
times larger than the pharmaceutical sector.

The overall Indian food service industry’s market size at Rs 4,23,865 crore in 2018-19 which is
expected to grow at a CAGR of 10.3 per cent to reach Rs 5.5 trillion by 2022-23. The Indian
Restaurant Industry employed 7.3 million people in 2018-19. The organized food service sector,
which is only 35 percent of the total market, contributed a whopping Rs 18,000 crore as way of taxes
in 2018-19. The number is expected to more than double if the unorganised sector becomes organised

Common Problems faced by the Food Industry .

1)Availability of Raw materials - Agricultural produce is a critical aspect of maintaining food

processing activities. Due to the seasonal availability of certain vegetation, the sector faces delays
in production resulting in low supply. Rabi crops like wheat, barley, and mustard are sown around
mid-November and harvested in April or May. These food grains are dependent on forces of nature,
that are instead unpredictable.

Seasonal deficiency and high cost of raw materials constitute one of the most important
constraints affecting the growth of small-scale food processing businesses. This state of affairs
outcomes in shortage and higher pricing of raw materials.

2) Storage Constarints - Many of these scarcity issues can be solved via following proper storage
norms for raw materials. However, this is the main hazard faced by the Indian small-scale food
processing enterprise. The absence and inadequacy of infrastructure facilities to store raw
substances lower the nice and availability of the quit product.

In warehouses, problems rise up because of the scarcity of space and how commodities are
optimally stored in that region. Product damages are every other trouble confronted in the
warehouse; few damages are inevitable but may be decreased with a rack safety material and
resisting off overload of cabinets.

3)Transportation Issues:

Perishable food items should be shipped with proper packaging to keep away from breakages and
damages all through transportation. Also, timely shipping is essential to keep away from spoilage –
sure food gadgets do no longer ultimate long despite the fact that stored in climate-managed
centers.

4)Technological equipment:

In the Indian food processing quarter, we stick to conventional production strategies in which the
first-rate of agricultural and food merchandise is being inspected by means of human evaluators.
This manual inspection is time-consuming, hard work intensive and at risk of human blunders. To
lessen the impact of these issues, automatic inspection of those products ought to be implemented.
5)High competition:

This enterprise is notably aggressive with many players in the organized, in addition to,
unorganized sectors. A few of the top Indian Food Processors consist of Nestle India Limited,
Britannia Industries Limited, Amul India, Parle Agro Private Limited, Haldiram’s Food
International Limited and ITC Limited. In order to live on in competitive surroundings, the food
processing enterprise can truly develop through marketing channels, enhancing foods, high-quality
requirements and improve the manpower to stand international challenges.

Name of the restaurant: Udupi Krishna Upahara

Introduction:
Udupi Krishna Upahara is a Bangalore based restaurant located in Jayanagar. The restaurant
was inaugurated on 12th June 2013. It is a pure vegetarian restaurant. It has its branches in
Marathahalli, Kormangala and Shivajinagar. It is a fine dining restaurant serving delicious
North Indian, Chinese food, Juice, Ice dreams and Desserts. It has two huge party halls in
addition to fine dining where marriages, birthday parties and kitty parties will be held. The
restaurant provides outdoor catering services as well but for an order of minimum 50 people.
The restaurant is tied up with Swiggy and provides home delivery service. The restaurant also
provides free home delivery within 4 KMs on the minimum food order of Rs 500/-. Buffet
Lunch and dinner will be held only on weekends where varieties of food along with desserts,
salads, etc will be served for a price as less as 550 rupees.
Person Interviewed ; The person who was introduced for the purpose of collecting Data was
Arun Kumar who is the proprietor of the business. He was one of the co-partners of Gokul
Vegetarian Restaurant in Gandhi Bazaar prior to starting this restaurant. He has been associated
with Udupi Krishna Upahara from its inception and has shared some valuable knowledge with
us with respect to the restaurant. Data collected through the interview was very helpful in the
preparation of this report.
Data collection :
Primary Data : The primary data was collected through the personal Interview.
Secondary Data ; The secondary data was collected from the cost records managed by the
company.

Identification of Costs :
1) Fixed Costs: Fixed costs are those costs which do not fluctuate each month. They remain
stable. They include Salaries to employees, Depreciation, insurance, Interest Expense,
Utilities like cost of electricity, gas, phones
2) Variable costs: These are the costs which keeps changing as the volume of sales keeps
fluctuating. Costs associated with food, Restaurant Maintenance, Restaurant supplies like
Napkins, Table cloth, etc.
3) Sunk Costs or Restaurant Kitchen Equipment cost : This is a cost which already has been paid
for and cannot be recovered in anyway. Restaurant Equipment such as Chairs, Tables, Oven,
Refrigirator, Cylinder, Stove, Air conditioner.
4) Direct Costs – These are the costs which are directly involved in the preparation of food.
Ingredients cost like cost of fruits and vegetables, labour cost- All the labour required to make
and serve the food.
5) Labour costs - Labor cost is more than hourly wages and salaries to employees—it also
includes: Overtime and Bonuses, Payroll Taxes, Health Care, Vacation and sick days,
Bonuses and any other labour related costs.

6) Restaurant POS System costs – This includes One time hardware fees, Monthly software
subscription fees, support and maintenance, Installation costs, Training costs, Payment
processing fees.
7) Indirect costs – These are the costs which do not fluctuate according to the amount of sales a
company makes. A spike in sales will not necessarily translate to an increase in these
particular expenses. Restaurant rent, Warehouse charges, Depreciation, Insurance, Audit fees
are examples of Indirect costs.

Classification of costs :

On the Basis of Nature or Traceability:

1) Direct Costs : This includes Direct Material and Direct Labour
2) Indirect Cost : This includes Depreciation, Restaurant Rent, Insurance, etc

On the Basis of Behaviour:

1) Fixed Costs- Wages to employees, Utilities, Audit fees
2) Variable costs –Restaurant supplies like Napkins, Training costs
 Analysis of Costs: The biggest challenge in any restaurant business is to control the
unnecessary expenses which they incur which has a negative effect on the Profit Margin.
A restaurant which is doing good in its business knows how to cut down the unnecessary
expenditure it incurs in the way of Excessive storage of fruits and vegetables as these cannot
be stored for a very long time and gets rotten. These relate to the normal loss which a business
incurs. It is found that the Direct material costs sum up to 35% of the Total sales of the
business.

Direct labour is another huge expense which the restaurant incurs. This includes Salaries paid
to employees, accomodation of employees, Bonuses, etc which constitute up to 40% of the
total sales of the business.
Fixed costs are those which are incurred irrespective of the sales volume. The amount r
volume of sales does not have any kind of impact on this cost. This includes Kitchen
Equipment, infrastructure costs, etc. These costs are unneccasarily adding up to the expenses
but the restaurant can’t do anything much as they need to incur this to ensure the smooth
running of the business
Variable costs fluctuate with respect to the changes in the level of output. They include
restaurant supplies like Napkins, Table cloth, electricity , water supply etc. As the sales
increase the variable costs increase conversely as the sales decrease the variable costs should
decrease as well.
Sunk costs are those which are already incurred in the past. They cannot be recovered back.
Restaurant Kitchen Equipment costs is a good example of Sunk cost.
Replacement costs - This cost is the cost at which existing items of material or fixed assets can
be replaced. Thus this is the cost of replacing existing assets at present or at a future date.
Shutdown costs - These costs are the costs which are incurred if the operations are shut down
and will disappear if the restaurant continues to operate.
Normal costs: Normal costs arise during routine day-to-day business operations .They are the
sum total of actual direct material cost, actual labour cost and other direct expenselike restaurant
maintenance, Daily wages of employee, etc
Abnormal costs: Abnormal costs arise because of any abnormal activity or event not part of
routine business operations. E.g. costs arising of floods, riots, accidents etc. Suppose if a fire
breaks out in a restaurant and the restaurant catches fire then the expenses required to rebuild
the restaurant or bring it back to the original position is an example of Abnormal cost.
Service Department:
1. Receive and record table reservations.2. Greet familiar customers by name.3. Seat
customers.4. Talk with customers while they are dining.5. Monitor service times and
procedures in the dining area.6. Observe customers being served in order to correct problems.7.
Ask customers about quality of service.8. Ask customers about quality of the food product. 9.
Listen to and resolve customer complaints.10. Authorize complementary meals or beverages.
11. Write letters in response to customer complaints. 12. Telephone customers in response to
customer complaints. 13. Secure and return items left by customers.
Production Department:
Food Production is a department which is involved in preparation of food. A process, in which
raw materials are cooked, combined and transformed to make a dish. The scope of Food
Production has been widening at a faster pace in India as well as Abroad. A Chef is involved
from purchasing to deciding the menu, supervising the kitchen, maintaining the quality of food,
sanitation standards, and coming up with new dishes. Food Production department comprises
of main kitchen, banquet kitchen, soup section, pantry section, pastry section, baking &
confectionary section, and vegetable section. He is responsible for menu planning and menu
engineering; and special dishes to be added from time to time. He/she is also responsible for
creating recipes, indenting and costing. A Chef supervises the purchasing, preparation of food,
organization of kitchen, equipment’s required in the kitchen, recruitment of staff, maintaining
the cleanliness and inspecting the quality of raw materials to be used in cooking; at the same
time be aware of safety standards.
Production and Service Overhead costs:
1) Advertising expenses.
2) Depreciation on restaurant's building, large equipment, and vehicles purchased for
restaurant use.
3) Custodial services, accounting services, consulting fees and warehousing charges.
4) Restaurant Rent.
5) Repairs on restaurant's structure, storage buildings, parking areas, vehicles or
equipment used in the business.
6) Cleaning supplies and dishwashing detergent.
 7) Trash removal, recycling fees, telephone service, Internet fees, and monthly charges
for water, natural gas and electricity.

Cost control measures:

Cost control is a process used by managers to regulate cost and guard against excessive costs
and it’s an on-going process. It is to ensure that the restaurant is profitable. Few of the
techniques used by this restaurant to control their costs are:

1) Tracking and controlling the inventory

2) Purchasing raw materials on credit to control costs
3) Controlling labour costs by reducing employee Turnover
4) Tapping internal thefts and Pilferage
5) Daily and weekly reporting to keep track of Restaurant costs

Problem Statement;
By analyzing the cost sheet, we found out that the expenses in the P/L account exceeded
the sales amount as a result of which the restaurant had to face a loss. We also found out
that the Direct Material costs and Direct labour costs were very huge in number which has
largely contributed to the loss. The restaurant needs to cut its operating expenses to a
large extent. The other major problem that the restaurant is facing is the labour problem
which means that the company is facing a lot of problem in retaining labour as a result of
which they are forced to pay more. Customer service is yet another problem which the
company is facing. Therefore, we will be working on these aspects to control the costs
incurred by the company.