Milk supplying in student cafe

Introduction
1. Background
Milk is said to be the most complete food item because of its great biological value as it contains
a variety of nutrients and these nutrients in milk help make it nature’s most nearly perfect food.
Improving human nutrition plays an important role to achieve food security. Dairy products have
a unique contribution to nutritional status as well as health status of the smallholder household
members.
On the other hand, Ethiopia has a huge livestock resource but the country is not self-sufficient in
animal products and is a net importer of dairy foods. In the country, the average daily energy
intake is estimated to be 1610 kcal/person/year (FAO,1994).

There is rapid growth number of student in the university. This factor has played an important
role to increase the demand for dairy products especially in the university. The demand for dairy
products depends on consumer preference, consumer’s income, population size, price of the
product, price of substitutes and other factors.

Zenzelima village is good for agricultural potential, with great access of raw material (milk)
for the production of milk products. In the town, there is fast growing dairy production and many
households are engaged in dairy production for their income and consumption. Availability of
feed, veterinary suppliers and also access to market help them to expand their dairy
production.To solve all the above problems and to make use of all the opportunities in the town
we decided to plant our enterprise around zenzelima village.

Ethiopian livestock breeds are with low milk production and difficult to think business out of
milk at household level. Very few entrepreneurs have started milk and milk products using
exotic dairy breeds around and in big cities like Addis Ababa. Presently, in most of the big shops
and supermarkets of Addis there are milk and milk products in short supply.

Besides to the production background, the supplying area is un accessible milk and milk product
. In the past two or three years ago the supplying area (student cafe) has access to use the product
even if the present in the student cafe, that is not sufficient to balance the demand .In fact now
most the student are interesting to use milk and milk product, but still there is scarcity of
supplying the product. Having these idea in mind we motivated to start a small business in order
to solve the problem as well as creating job opportunity for us by supplying milk and milk
products for student cafe.

Objectives
Objectives of this feasibility study of the project are:
 To understanding the feasibility study of milk and milk products supplying and
enterprise
 To improve and satisfy the demand and supply milk products for the customer
After proceed of this project, the goals and objectives of the enterprise are:
 To supply milk and milk products for customers in Bahir dar university and where there
is no access to these products.
 To be a best profitable in milk supplying business enterprise .
 To ensure and provide milk products in modern ways to our customers.
In generally our goal is to run a business through milk by supplying to the end user of the
processed product.

2. PROJECT DESCRIPTION

Generally, the initial step in starting new business venture is to find out suitable business model.
As entrepreneurs looking for different alternative scenarios and analyzing them thoroughly from
social, economical and environmental prospective is very important. Hence, we develop some
business model as alternative and finally select the best business model (alternative), so that the
business venture becomes sustainable.
Factors to be considered while selecting the appropriate business model are:
 Accessible of resource
 Availability of competitors
 Technical and financial suitability
 Availability of potential customers
 Social, economical and situation etc.
Assuming all the above factors, analysis and evaluation of business have been made and finally
milk and milk product supplying enterprise is selected. The enterprise is to be located in
Zenzelima village, which is 5km from Bahir Dar. The size of this plant depends on the number
of employee and the processing capacity. In the beginning, the enterprise has about 20
employees and capacity of processing about 1300litre of milk per day. So it can be called small
business. In the future, the enterprise will have the aim of being one of the largest milk
processing and supplying industries in our country.
Relationship to the surroundings geographical area
Milk product and supplying has many impacts, which are economic and social impact. The
economic and social impact that milk products and supplying address is:
 Income opportunities for the employers
 A supply of processed milk for the local customers
  Full filling the interest demand of milk for the users of the processed milk and milk
products
Environmental impact: Since Zenzelima village is geographically comfortable for milk
product. This is because of it’s good weather condition. The following are the environmental
impact:
 The waste disposed from cattles and other milk supply animals deteriorate the
surrounding environment
 Overgrazing

Feasibility Analysis:-is analysis of the viability of generated idea through a disciplined and
documented process of thinking through the proposed idea starting from its logical beginning
to its final.

Generation of ideas
The following points are to be considered while generating new project ideas:-
 Shortage of service or product in the student cafe
 Identification of unsatisfied demand
 To fulfill students interest, etc.
Due to considering all the above source of project ideas, it is possible to generate different
project ideas that are listed in the description of the project. Feasibility analysis consists of the
following analysis as shown above.
 Technical analysis
 Market analysis
 Financial analysis
 Economic and ecological analysis
 3. Market feasibility
3.1 Enterprise description
Size & scope of the industry
The size &scope of milk supplying industry depends on the following points:
Number of employees, demands of the customer, capital investment, etc
Milk supplying industry is today not growing as demand of milk product in our country.
This means much to be done to satisfy this different customer demands.
At the beginning, the enterprise is a medium sized business, which has 10-20 employees.
But, it will grow to large supplying firm when starting producing at its full capacity.
Scope of the enterprise ranges from producing milk products to using crossbreed cows and
produce milk from own farm to fulfill requirement of raw milk.
The enterprise product can also have different market segments to satisfy the demands of the
customer & to get acceptance at different level of living standards. So, the possible market
segments are:
 Supplying milk for poly campus
 Supplying milk for peda campus
 Supplying milk for FB campus
Future direction of the industry
In the future, the enterprise can have the following direction:
 Increasing the production capacity from 1300 to about 10,000litres per day.
 Increasing the supply from own farm (from own cows).
 Establish production & distribution centers in different parts of our country to fulfill large
population demand.
 Increasing market share of our products.
 Changing size of enterprise from medium business to large scale producing firm& etc are
the future direction of our enterprise.
Nature of the industry
The consumption and demand of milk is in an increasing order as we have tried to discus above.
This means that the demand of milk increases constantly in stable manner. So, the enterprise is
going through constant & stable system in production & marketing. Since the demand of milk
increase at different levels of life standards, it can increase production capacity & market
segmentation to fulfill this demand. On the other hand the enterprise will rapidly change it self or
restructuring when different change takes place in the environment to cope up with it. Some of
these problems that cause the enterprise to change are: Whether conditions, Power supply,
Government policy, and Competition.
The enterprise has to change itself to withstand this problem for a long time & not to be out of
the market.
Life cycle of industry
The industry life cycle refers to the succession of stage an industry goes through.
Identifying the life cycle helps the industry in the following ways:
o To know where the product exist at this moment.
o Predict what may happen in the future.
o To select the appropriate strategies to be followed.
o To identify competitors at different stages.
All manufacturing industry can involve in different stages of life cycle. This are:
A. Introduction.
B. Growth stage.
C. Maturity stage.
D. Decline stage.
The life cycle of the industry depends the types of product. Therefore, the life cycle of any
industry has direct relation with the life cycle of the product.
Considering milk product, the products have continuous demand and the demand increases as
number of people and economic standard of our country increases.
Therefore, the enterprise will have long life cycle, if other things like the management and
supply remaining stable. So, to determine life cycle of enterprise it is good specially to concern
introduction, growth and maturity stages.

3.2 Enterprise competitiveness

In Ethiopia, there are many small & micro enterprises, which produce milk & milk products.
They are generally many enterprises which are small producers & they are distributed in many
parts of our country.
Major competitors are:
 fasil diary enterprise
 Mama diary enterprise
 And etc, are the major competitor of our enterprise.
There are barriers & ease which prevent or allow the development of the enterprises to take
parting the market. Some barriers which prevent the development of the enterprise or make
difficult situation to participate in the market are: Production capacity, Product quality, Product
variety & market segmentation and Capital investment.
In other cases there are also many opportunities that enable the milk industry competitors to
participate in the market competition. These are:
 Government policy toward small & medium enterprises.
 Increasing demand of milk
 Availability of raw material, fresh milk
 Low concentration of milk industry & etc.
Concentration competitiveness of milk suppliers & product buyers are also an important factor
for the competitiveness of enterprise.
Another thing to be considered for competitiveness of enterprise is selling price of the enterprises
product. Some of the appropriate pricing or marketing method to compete and satisfy customer
needs are as follows:
 Skimming price
 Penetration price
 Cost plus pricing
 Premium pricing
Since our product has a lot of user (high demand) we use penetration price method in
order to attract more customer and to concurred our competitors.
3.3 Market Potential
Milk products have a highly increasing demand and consumption rate. This demand of milk is
not fulfilled as explained before. The usage and demand trend of milk products is rapidly
changing from traditional milk consumption to modern or industrial outputs. This is due to health
problems, quality, availability etc. So, there are high potential buyers for the products.
Other market potential for the products is different segments of market. As discussed before
there are different markets to which the product is supplied. Market usage and share at present on
milk product is highly comprised by fasil dairy enterprise. But, fasil dairy enterprise cannot
fulfill the demands of milk products. So, the enterprise will have good market usage and market
share after it starts producing at its full capacity.
3.4 Sales Projection
As explained above usage of milk product is not as modern in Ethiopia. As we know 85% of
Ethiopian populations are farmers and they have no much opportunity of using quality milk
products and this project or enterprise is aimed at improving these conditions, i.e. changing the
attitude of people toward milk products using quality milk products.
The product’s sales will be changed under different conditions like:
 fasting period by Orthodox Christian people
 Winter time when the milk supply is low relatively
 Shortage of food for feeding the cow etc.

yr Item Litter Estimated Estimated Estimated sales per yr

per day sales per sales per
day month
2006 Milk 1300 15600 468000 5616000
2007 Milk 1300 15600 468000 5616000+30000=5646000

Tija 10*3000=30000per yr
2008 milk 1260 15120 453600 +100000=
Tija 10*10000=100000
 3.5 Access to market outlets
The product is distributed to the customers through different techniques.
 By supplying to student cafeteria directly.

4. Technical feasibility
4.1. Facility needs
The technical analysis of new enterprise is primarily concerned with analyzing the following
facility needs:-material input and utilities, Location and site, Product type, manufacturing
process/technology, plant capacity, machinery and equipment, manpower requirement and civil
work.
4.2 suitability process and technology
Technology required for manufacturing product/service of two or more alternative technology is
available. These include:
 Completely manual
 Completely automated
 Combination of the two
The most common type of technology is combination of the two and also we select it from
producing its product due to the following reasons:-
 The plant capacity is small,
 These technology will allow us to utilize local raw milk and local man power,
 The technology will not distribute ecological balance.
Manufacturing process
After the fresh milk is received its filler and dumped into dump tank. Then it is chilled with the
help of chiller, so that the growth of bacteria is minimized. On average fresh milk contains 4.5 %
fat will be reduced to 3.5% with the help of cream separator. The separated cream further
processed to produce butter. The remaining milk after the cream is separated from it will further
processed to produce different products like powder, cheese, yoghurt and liquid milk.
4.3 Location and site
To compete and give long life for industry or plant to be implemented, selection of appropriate
and suitable site is very important. This is the first step while establishing new plant (enterprise).
While selecting location and site for the enterprise, we have to consider the following factor.
 Access to raw material,
 Suitability of weather condition for animal
 Accessibility to market
 Due to enough qualified labor,
 Suitability of land,
 Due to nearest to Addis Ababa town where tahe people are more dense
 Community receptiveness and etc.
Although it is difficult to fulfill all of the above factors while locating an enterprise, priority
should be given for critical factors like proximity to raw material and market and also
availability of infrastructure etc. By considering all factors, we decided to select a site for the
enterprise in Oromia region, North Shewa zone around Fitche town.
Relativity to market
Proximity to market is very critical factor in site selection. Some of the products should be
delivered to customers as soon as possible; accordingly, the site selected has good access to
market. Since, Fitche is almost neighbor for big towns of the country like Addis Ababa, Bahir
Dar and Gabra Guracha the enterprise can sell its products easily. The enterprise can also sell
its product in small town around Fitche. Beside this absence of competitor around this site will
allow the enterprise to accommodate all the market that is why we say Fitche has good market
accessibility.
Proximity to raw materials
Another critical factor that determines the life of an enterprise is its proximity to raw material.
So, it is one factor that priority should be given too. As mentioned earlier basic raw material is
milk and it has, availability around Fitche is very high due to the following reasons:-
 Farmers around Fitche are well known pastoralist and they can sell enough milk to the
enterprise.
 The enterprise can get milk in low price because there is no more that much competitive
enterprise around there.
Availability of infrastructure
These include availability of the following:-
 Transportation
 Communications
 Power
 Water
 Financial institutions
 Health center etc.
Even though, Fitche does meet all the point mentioned above, the most important infrastructure
for the enterprise is available.
Material input and utilities:
This is primarily concerned with defining the material and utilities required and specifying their
properties in some detail in raw material estimation.
4.4 Raw material estimation
Basic raw material or input for milk and milk product processing enterprise is raw milk
(unprocessed milk). This raw material can be collected in two ways:-
A. From enterprise’s own farm and
B. From the surrounding farmers and local suppliers
The proportion of intake from two sources depends on plant raw material intake capacity. By
considering many factors, the enterprise is needed to have capacity of processing 3000L of raw
milk per day. Twenty percent of this milk is to be supplied from enterprise’s own farm. The
enterprise is supposed to own 85 cows. From these cows, 65 of them are assumed to give milk. It
is possible to get about 15-20 liters per day from one cow if they are cross breed. Therefore the
total amount raw milk supplied from own farm is as follows:-
The following Simple calculation is used to calculate the amount of maximum and minimum
milk source per day.
Minimum= (number of cows*liters of milk/cow)
=65cows*15 liters/cow
=975litres/day
Maximum =65 cows *20 liters/cow
=1300 liters/day
Hence it is possible to get a total of (975 -1300) liters per day from own cows. The remaining
1700 liters is supplied from surrounding farmers.
 Cost of raw milk
As we mentioned above the raw milk is come from local farmers and from own cows. Hence the
cost of raw milk includes the following:-
i. Costs related with cows.
ii. Cost of raw milk from suppliers.
 Cost of raw milk from outside suppliers
This is the cost incurred to buy milk from outside suppliers. As we know, the current price of one
liters of fresh milk is about 6-8 birr. The expected amount of milk to get from suppliers is 1700
liters. Therefore, the total cost of this milk can be from 10,200-13,600 birr per day. By being
pessimist, the total cost of raw milk per day would be 13,600birr. The amount of milk supplied
by enterprise’s own cows is 18 %( 975-1300 liters) of the total intake. In this case the cost of raw
milk is the cost of feeding cows as tabulated bellow.

Food Amount of food Average Price/day (birr)

consumption/day
Amole salt 1 2Kg 2.5
Fagulo 3 5Kg 12.5
Dirkosh 3 3Kg 9
Frushka 2 4Kg 10
Water 0.01 100 liters 1
Teff chid 2 3Kg 6
Total cost of one cows food 41

This total cost (41 birr per day per cows) is the cost of food needed for cows which are supplying
milk, the cost of cows which are not supplying milk due to different reasons like, pregnancy,
medical conditions (illness) and etc are considered in idle costs. The money that is found from
selling their calf after they gave birth compensates this cost idleness of cows. Hence total cost of
feeding per day= number of cows *cost per cows
=85*41
=3485 birr/day
Therefore total cost raw material is the sum of the above two costs, that is:-
=13,600 birr + 3,485 birr
=17,085 birr/day
The cost of raw milk from our cows = (total cost of food for cows)/ (milk per liters)
=3485/975
=3.57 birr/liters………………….. (Maximum)
=3485/1300
=2.68birr ……………… (Minimum)
This shows cost of one liters of milk obtained from own cows is less than that of buying from
farmers; this is why it is good to invest money to buy cows. Hence average cost of one liter is
total cost of having divided by number of liters obtained that is 17085/3000=5.7 birr/ liters.
 Future availability of raw material:
Proximity of raw material defines the accessibility raw material, if and only if, its future
availability is assured. In the future since production capacity of Enterprise will increase, it is
necessary that there are direct relationships between the availability of raw material and its
capacity. At current conditions the raw material requirement of the enterprise is up to 3000litres,
but this will increase by 4% each year. To fulfill this requirement the following actions should be
taken:-
The enterprise should increase the number of its cows in relation to its requirement and
the responsibility of collecting fresh milk should be given to another body, so that they will
follow their strategy to collect the required amount of raw milk.
As mentioned above most of Fitche farmer are pastoralists, hence it is easy to get the required
amount of raw milk in the future by taking the action mentioned above.
 Quality of raw milk
Raw milk that is supplied from different sources are not directly processed, rather it is inspected.
If the inspected raw milk is within the range of the specifications, it will directly pass into the
next process. However, if the milk is not in the specified range, rectification action will be taken.
Range of specifications
Quality of raw milk should meet the specifications supposed by ISO 9010 and food quality
agency. These specifications are:-
a) Fresh milk should have only 3.5% fat
b) The viscosity (solidity) of milk 9%
In addition, the raw milk get contains 4.5% fat and 6.75% of solid content. To come up with
standard, the following action is taken.1% of fat is removed the help of cream separator,
The viscosity (solidity) of milk is increased to the required level by adding milk powder. This
corrective action is taken while it is in process. In such a way, we produce quality product.
4.5 Other inputs
Labor and man power requirement
Total of 50 man power can handle the operation of the enterprise easily. Technical staff with
certificate or diploma is sufficient to look after specific tasks at plant except qualified laboratory
staff, senior mechanic (operator) and managerial staff.

Manager 1
Laboratory technicians 3
Machine operator 6
Helper 3
Marketing and sales supervision 1
Distribution supervisor 1
Watch man 3
Driver 2
Office clerk 1
Milkier 10
Cow feeder 5
Cleaner 4
 Maintenance
Senior mechanic 1
Mechanic 1
Helper 3

Table. Labor requirement

 Auxiliary supplies
Auxiliary supplies are auxiliary materials that are used together with basic raw materials and
they facilitate processing activity. This includes chemicals, additives, packaging materials,
paints, oil and lubricates must be taken into considerations.
 Utilities
Utilities are also material input, which plays vital role for the enterprise. These include power,
water, and steam; fuel etc. They are mainly concerned with generating power to run the factory.
In our country, there are many rivers that can be used to generate electricity but their utilizations
were not being satisfactory for the past years. But today it shows improvement and so we will get
enough electricity for the enterprise. In case there is low power supply, the enterprise will use
generator.

5. Financial feasibility
Financial analysis is the process of determining the project capital requirement, total project sale
& revenue& means of financing the project.
5.1. Total capital requirement
Is the overall capital needs to start the project. This capital requirement for the enterprise
includes:
 Land
 Building /infrastructure
 Furniture & fixture/office equipments
 Pre operating cost/startup cost
 Vehicle(second hand)
 Cows
 Equipments
 Working capital (contingency & insurance capital)
Land and building cost
The total land required for the enterprise is about 28,000 square meters including cows feeding
areas.
 Area(sq meter) Construction
Description cost(birr)
Managerial 80 25,000
building
Store rooms 30 13,000
Factory 160 100,000
Wash rooms 70 25,000
Pavement and drive 60 5000
way
Grounds 100
Cows feed 27,500 3485
Total 28,000 171,485

Table. Land and building cost

By assuming the cost of bare land to be 2 birr per sq meter, we can have:
28,000 * 2 = 56,000 birr
The total land & building cost = 56,000 birr + 171,485
=227485 birr.

Machinery requirement

Machine name quantity Cost per machine(birr)

Boiler 1 60,000
Chiller 1 60,000
Cream separator 4 280,000
Thermostatic tank 1 50,000
Homogenizer 1 72,000
Fill & seal(pack) 5 650,000
Generator 1 200,000
Refrigerators 2 50,000
Sterilizer 1 60,000
Evaporator 1 150,000
Drying machine 1 32,000
Yogurt processing 2 25,000
machine
Cheese processing 1 40,000
 machine
Other machines 471,000
Installation cost 200,000
Total 2,350,000
Table. Machinery cost
Furniture & Office equipments.
Furniture & other office equipments required for the enterprise are:
 shelf
 table
 computer
 writing materials & etc
These office equipments will account as about 50,000 birr.

Item Cost(birr)
Shelves 2000
Tables & seats 5000
Computers 20,000
Writing materials 10,000
Other necessary 13,000
Equipments
Total 50,000

Table. Office equipment cost

Vehicles
Vehicles are important to collect milk from supplier & also to distribute the product to different
market. So, the enterprise need to have two Isuzu so that it will address it’s product to the
customer & receive the raw material at the desired time. As we have got information, the cost of
one second hand Isuzu is about 300,000birr.
The cost of cows
The average cost of high milk producing cow in our country in average is about 10,000birr.we
start our enterprise by 65 cows & the total cost will be:
65*10,000 = 650,000birr.
Equipments required.

Name of equipments Cost(birr)

Stainless steel equipments 10,000
Milk collecting equipments 5,000
Milk transfer equipments 5,000
Mixing equipments 4,000
Pipes, pumps, valves & fittings 10,000
Milk storage equipments 15,000
Other equipments 13,000
Total 62,000
Table. Equipment cost
  The pre operating cost or startup cost.
This cost is the cost required to start the process of the enterprise. This cost will account about
100,000birr.
Working capital
Working capital is required to connect (bridge) the gap b/n the time enterprise get paid & when
they have to pay their suppliers & their over head cost.
These capitals include:
 upfront insurance capital
 contingency capital
For this enterprise we estimate working capital to be110, 000 birr (insurance capital, 10,000birr
&contingency capital, 100,000birr).
Total capital requirement for the project is the sum of all the above costs.

Account head Total cost(birr)

Land & building 227485
machinery 2,350,000
Furniture & office equipment 50,000
Pre operating cost 100,000
Vehicle 300,000
Cows 650,000
equipments 62,000
Insurance capital 10,000
Cash 100,000
Working capital 110,000
Total project cost 3,959,485
Table. Project capital requirement
Other capital required for the project is replacement capital requirement for facilities,
machineries & etc. this capital requirement may not be important to consider total project cost
b/c the enterprise has life time of about ten years & more without replacing facilities &
machineries. So determining cost or capital requirement is difficult since price of machineries &
other condition may change greatly within the industry’s life.
5.2 Estimate the Equity and Credit Needs
The principal capitals required for the project are:
 Equity capital
 Working capital
 Asset finance
To meet these different types of capital requirements there are the following options of
financing.
 Debt financing
 Equity financing
The enterprise is to be financed by these two financing system in ratio of 7.5 to2.5. That means
75% debt and 25% equity. There for from the total project cost of 4,308,020 birr the proportion
of equity and debt is follows:
 Equity, 25%*3,959,485=98987125birr
 Debt, 75%*3,959,485=296961375birr
1. Debt financing
Debt financing requires to pay back the amount of money borrowed and interest of this money.
In Ethiopia generally bank debt is at an interest rate of 12% per annum. Therefore, if need to pay
back the debt at the end of first year
265144085+0.12*265144085=296961375 birr
But, it is good to borrow this debt from Ethiopian development bank to pay back at a 5-years
term and paying 1/5 of the borrowed money and interest of loan at the end of each year.
1/5*265144085=53028817 birr each year
Interest of money left unpaid at the end of each year can be calculated using the following
formula for 5 years:

Yer Debt payment Amount left interest Total

payment
1 265144085 53028817 212115268 31817290.2 84846107.2
2 212115268 53028817 159086451 25453832.16 48782649.16
3 159086451 53028817 106057634 19090374.12 72119191.12
4 106057634 53028817 53028817 12726916.09 65755733.09
5 53028817 53028817 0 6363458.04 59392275.04
Total 330895955.61birr
Table. Debt payment term.
2. Equity financing
The project capital requirement of about 25% is fulfilled by equity financing. Source of equity
for the project is to be found from local investors and from local wealthy farmers. As we have
information from around Fitch town there are farmers who are milliners and want to invest their
money on small and micro enterprise. Hopefully they are willing to be the stockholders of the
enterprise.

In equity financing having a share in profit is the main reason that individuals or organization
acquire ownership of certain business. Based on the amount of shares of stocks, the enterprise
should distribute surplus profit among stockholders. From total profit 10% is divided or
distributed among stockholders according to their share amount in the enterprise.

5.3 Budget expected costs and returns of various alternatives

The total project cost that we discussed before is the cost of initially acquiring the enterprise.
But, to operate or run this project there are costs to be paid monthly or in terms. This can be
called production or operation costs of the project. These costs consist of the following costs:
 Cost of labor
 Cost of buying milk from supplier
 Cost related with cows
 Cost of transportation
 Cost of chemicals
 Electric cost
 Water
 Office material cost
 Inventory, spare part cost
  Maintenance cost
1. Cost of labor

Manpower Qty Salary/month

Manager 1 2500
Laboratory technician 3 1200*3=36,000
Machine operator 6 1000*6=6000
Helper 3 500*3=1500
Marketing and sales 1 1000
supervisor
Distribution supervisor 1 1000
Finance 1 1000
Watchman 3 600*3=1800
Driver 2 900*2=1800
Office clerk 1 800
Milkier 10 400*10=4000
Cow feeders 5 500*5=2500
Cleaner 4 450*4=1800
Maintenance
Senior mechanic 1 900
Mechanic 1 1000
Helper 3 500*3=1500

Total labor cost 65100 birr/month=781,200birr/year

Table. Labor cost

2. Cost of buying milk from supplier

As we mentioned before about 1700 liters of milk is supplied from outside suppliers. The
average price of 1-litre milk around our site is 5birr.
 Assuming in one year there is 365 days, out of this days 317 is our work days, the left
days is for maintenances and sanitation day.
Cost of buying milk per day =1700*5=34,000birr/day
=317day*34000birr/year
=10778000birr/yr
3. Cost related with cows
As we calculated this cost on technical feasibility, it needs to pay 3485birr/day for cows.
Total cost per year=3485*365= 1272025birr/day
4. Fuels or transportation cost
As we discussed before, the enterprise need to have two vehicles used for transportation of raw
material and products. For vehicles:
1 liter=10 kilometer=10birr
The average distance traveled by one vehicle per day is about 500 km.
Taking 317 working days per year total cost of fuel of one vehicle can be calculated as follows:
500*317=158500birr/year
  Cost of chemicals
The total cost paid for chemicals used in the production process is assumed to be
70,000birr/year.
 Electric cost
Power consumption of the project is about 8kwhr/hour.
Total consumption per year =8kwhr/hr*317days/year*8hr/day=20288kwhr/year
Total cost of electric is then:
20288kwhr/yr*0.4birr/kwhr= 8115.2birr/year
7. Cost of water
The enterprise requires about 2400 liter/day water for production process and for cows.
Total consumption per year=2400*365=876,000 liter
Total cost per year= 876,000liter*4birr/1000liter
=3504 birr/year
8. Office material cost
This cost include writing material cost, computer accessories and etc. this cost would account
about 40,000birr/year.
9. Inventory, spare part costs
Spare parts are required to keep the unexpected machine break down to their functional position.
We assign 25,000birr/year for this cost.
Total production cost can be summarized as follows in table.

Total production cost can be summarized as follows in table.

Expense Cost/year(birr)
Cost of labor 781200
Cost of buying milk 10778000
Cow related cost 1272025
Transportation (fuel) cost 158500
Chemicals 70,000
Electric 8115.2
Office material 40,000
Spare part cost 25,000
Water 3504
Total cost 13,136,344.2birr/year
 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6

Estimated sales revenue

 Cheese 180000 180000 180000 180000 180000 180000
Production Butter 68572 68572 68572 68572 68572 68572
capacity Fresh 222857 222857 222857 222857 222857 222857
milk
107143 107143 107143 107143 107143 107143
Yogurt 81429 81429 81429 81429 81429 81429
Powder
Starting
capacity 75% 75% 75% 75% 75% 75%
utilization
Capacity
utilization 5% 5% 5% 5% 5%
growth rate
Capacity
utilization 70% 75% 80% 85% 90% 95%
of the year
Production Cheese 126,000 135,000 144,000 153,000 162,000 171,000
per Butter 48,000 51,429 54,858 58,286 61,715 65,143
year(unit) Fresh 156,000 167,143 178,286 189,428 200,571 211,714
milk 75,000 80357 85,714 91,071 96,429 101,786
Yogurt 57,000 61,072 65,143 69,214 73,286 77,357
Powder
Sales price Cheese 1209600 1296000 1382400 1,468,800 1,555,200 1,641,600
per unit in Butter 4416000 4731468 5046936 5,362,312 5,677,780 5,993,156
year(birr) Fresh 8582000 919,286 980,573 1,041,854 1,103,140 1,164,427
milk 675000 723,213 771,426 819,639 861,675 916,074
Yoghurt 3420000 3664320 3908580 4,152,840 4,397,160 4,641,420
powder

Revenue 10,578,600 11,334,287 12,089,915 12,845,445 13,600,841 14,356,677

Estimated breakeven analysis

The company sells multiple products, break even analysis is somewhat more complex. The
reason is that the different products will have different selling prices, different costs, and
different contribution margins. Consequently, the breakeven point will depend on the mix in
which the various products are sold.
Break-even point occur when the cost of producing commodity is equal to the total revenue of
the commodity.
The level of operation utilized percentage of plant capacity is computed when relatively simple
model of revenue & costs are equated.
To analyze or estimate profit or loss, it is often necessary to determine the quantity of product at
which revenue & costs will be equal. As unit price is increased the revenue curve becomes
steeper. Costs which are linear or nonlinear are composed of two components. These are:
1. Fixed cost which contains
 Building cost
 Insurance cost
 Overhead cost
 Some level of labor cost
 Land
 Machineries & etc
2. Variable cost which includes:
 Labor costs
 Materials
 Indirect labor
 Advertising & etc.
Fixed cost always exists even when no production is incurred.
Variable cost increase as production rate is increase. It is usually possible to decrease the
variable cost through better production design & manufacturing efficiency.
When the costs of producing each of the above items increase, the total revenue also increases &
at certain level they become equal.
The costs incurred while producing products are:
1. cost of raw material
2. salaries
3. transportation
4. utilities & etc
The total cost needed to produce the product is the sum the variable cost & the fixed cost of the
product. Since our products i.e. liquid milk, milk powder, fresh milk, & yogurt have certain cost
in common, but different measurements, it is very tedious to show them on the same graph.
 Pasteurized yoghurt cheese butter powder Total
milk
Sales 858000 675000 1209600 4416000 3420000 10578600

Variable 525600 396600 744000 285000 2850000 4801200

expense
(61.25%) (58.76%) (61.5%) (6.5%) (83.3%) (45.4%)

Contribution 332400 278400 465600 4131000 570000 5777400

margin
(38.75%) (41.24%) (38.5) (93.5%) (16.7%) (54.6%)

Fixed expense 4308020

Net operating 1,469,380

income

Table. Break even analysis

From the above table break, even point can be calculated as follows:

BEP= Fixed expenses

Overall expenses

Over all expense is equal to contribution margin (CM) ratio, 54.6%.

=4,308,020/9109220=47%

47% represent the breakeven point for the enterprise as long as the sales mix does not change. If
the sales mix changes, then the breakeven point will also change. Therefore in case of this
enterprise, the total cost of production is calculated in the previous section. i.e. the variable cost
for years (1, 2, 3, 4, 5 & 6) and fixed cost throughout the life of the industry life cycle. Almost all
the investment cost is returned at the first year of the industry’s life. The investment cost tends to
increase as number of product unit produced per period increase. This tendency is refers to be the
law of diminishing returns.
 Returns under various conditions

The price and sales volume of enterprise’s product may vary due to many reasons through out
the year. Some of these reasons are:

 Fasting of more than 200days by Christian population

 Reduction supply of milk during winter time due to drought
 Economic variation of country
Based on this variation we classified this season in to two.
1. Season one: - The best case, when all conditions go good and relatively stable, the
enterprise able to produce 3000 liter/day.
2. season two:- In worst case ,the season when fasting is high and winter time, production
will decrease by about 500 liters/day and sales volume and price also decrease to some
extent. During this season increasing production on milk powder is profitable, because it
is easy to keep if not sold on market.

Season-1 Season-2
Product Production Price/unit Sales Production Price/unit Sales
type capacity/day capacity/day
Fresh 2000liter 5.5birr 11,000 1000liter 5.5birr 5500
milk
Cheese 500kg 12birr 6000 300kg 6 1800
Butter 160kg 100birr 16,000 160kg 80birr 12,800
Yoghurt 250liter 9birr 2250 250liter 9birr 2250
Powder 150kg 60birr 9000 250kg 60birr 15,000
Total sales 44,250birr/day 25,830birr/day

Total profit=(Revenue+Intial capital)-Total cost per year

=[(10578600+3959485)-13136344.2]birr/year
=1,401,740.8birr/year
6. Organizational (Managerial) Feasibility
6.1. Business structure
Obliviously, known that, there are various forms of legal structure of organization, to organize
small business. We evaluate each of these available forms of legal structure by considering the
merit and demerit of each structure.
Then we select the one, which is optimal for the establishments of the enterprise. That is called
partnership. As definition, partnership is the association of two or more people to carry as co-
owner of business where the relation is based on agreement. Establishment of our enterprise is
due the association of four (our group), where the relationship is based on an agreement. The
partner decides to use the available asset of the enterprise to cover the debt. The following are
advantage of partnership forms of legal structure, which are critical for the enterprise:
 Easy of start up
 Increased source of capital
 Personal supervision
 Reduced risk
In such way, we select the appropriate forms of legal structure for the enterprise.

General Manger

Manager
Secretarial

Production & Marketing Maintenance Finance Distribution

Technique and sales Department Manager Supervisor
manger Supervisor

Quality Other
Machine
assurance operator employeer

Fig.1 Organizational Work Flow

6.2. Business Founders
Since we have the provision of leading the factory and the business is established by ourselves so
we participate in some of a work overtone in the factory including managerial activities,
laboratory technician and other part of job division in the company. We are four members in
founding the business namely, Tewodros Baye, Natenael Mulugeta,Alelgne Demeke, Sofonias
Aberham, Danial Muluneh and Kebede
Muilsa, so we give work division as follows
 Alelgne Demeke- Marketing and sales Supervisor
 Natenael Mulugeta,-Production manager
 Sofonias, Aberham -General Manager
 Tewodros Baye- Financial manager
 Danial Muluneh ,and Kebede Muilsa -Machine operator
In current condition all governmental and nongovernmental institution, industry bothin
manufacturing and service are obliged to implement new way of governance. What we call it
business reprocess engineering (BPR).
So that:
 Redundancy is of job is reduced
 Bureaucracy is eliminated
 Supervision by different person
 Good way of decision making
 Shortest lines of reporting.
We decide to establish good way of governance, effective and efficient lines of authority and
decision making process. So that the enterprise can get the benefits listed above.
Decision making process is done mostly by general manager. If the decision strategic partners
(owner) are intended to participate in decision making process.
Conclusions
Production of milk is treated as a commercial commodity as milk sales generate regular cash
income. Market-oriented milk production has many food security-related benefits for pre-urban
and highland smallholder communities. Dairy industry has multipurpose benefit in terms of food
availability, regular cash income and more employment opportunities. Market oriented dairy
production technologies involving the introduction of crossbreed cows and utilization of
complementary feed and management for increased dairy production, is being undertaken in pre-
urban and highland areas of our country. As we explained in the analysis, the demand for milk
and milk products are highly increasing and consumption rate of milk products also in increasing
way in our country. Due to this it is appropriate to develop and encourage dairy enterprise in our
country. According to the feasibility study we have made, owning milk processing enterprise in
Fitch town is profitable in short period of time.Beside this, the involvement of the enterprise with
in the society enables them to get job opportunities, quality product, high milk market and etc.
With ever increasing awareness of the importance of milk and milk products and perceived
dangers from contaminants while it processed traditionally, it is very important to avoid the
traditional processing method, so that, the demand of the product with high quality will be
rapidly increase. This brings about high production rate and expansion of the enterprise which
leads to its life cycle to be long duration.

Reference

Ahmed M A M, Ehui S and Yemesrach Assefa 2004 Dairy development in Ethiopia. EPTD
discussion paper No. 123. International Food Policy Research Institute. Washington, DC 20006
U.S.A.

Gebrewold A, Alemayehu M, Demeke S, Bediye S and Tadesse A 1998 Status of dairy

research in Ethiopia. In The role of village dairy co-operatives in dairy development.
Smallholder Dairy Development Project (SDDP) proceeding, Ministry of Agriculture (MOA).
Addis Ababa, Ethiopia.