School of Business & Economics

Department ACCOUNTING AND FINANCE

Prepared by:
  Abdisa Direba...............Eu 0002/11

Submitted to: instructor Idris Yusuf

May 2016

Adama, Ethiopia

1. Introduction

1.1 Background of New Bakery……………………………………………………………1

1.2 Objectives of New Bakery …………………………………………………………….1

1.3 Vision of New Bakery………………………………………………………………….1

2. Considerations In Selecting The Project……………………………………………………2
3. Project Component………………………………………………………………………….2
4. Location of Project…………………………………………….............................................2
5. Sources of capital……………………………………………………………........................3
6. Project Infrastructure. ……………………………………………………………………….3
7. Market Analysis……………………………………………………………………………...4
8. Project Management. ………………………………………………………………………5
9. Major Duties and Responsibilities…………………………………………………………..6
10. Financial Analysis:
10.1 Investment Cost Arrangement………………………………………………….......7
10.1.1 Costs for Building ……………………………...………………………….7
10.1.2 Materials Cost For Baking Process………………………………….…….8
10.1.3 Supplies Expense……………………………..............................................8
10.2 Income Statement…………………………………………………………………….9
10.3 Opening Balance Sheet ……………………………………………………………...9
10.4 Statement of Stock Holder’s Equity………………………………………………...10
10.5 Balance Sheet …………………………………………………………..……....…...11
10.6 Statement of Cash Flow…………………………………………………………..…11
11. Project Evaluation.................................................................................................................12
12. Environmental feasibility………………………………………..........................................12
13. Risk assessment…………………………………………………………………………….12
13. Project Implementation …………………………………………………………………….13
14. Summary and Conclusion……………………………………..............................................13

1. Introduction
1.1 Background of New Bakery

The birth date of Top bakery was in 2009 E.C. The establishment of and construction of new
bakery is in Addis Ababa town, kotaba, kebele 09 as a basis for production and distribution of
bread. In this area, the idea of establishing this business is penetrated in many of owners mind
and appropriate to establish the business. From the beginning the business is formed in the form
of partnership with equal capital accumulations. The accumulated capital; used for beginning the
business is 1million ETB which 80% is funded by partners and the remaining 20% is borrowed
from other financial institutions as a loan.

Best bakery (BB) engaged in providing quality product at fair market value for its clients. From
the beginning the business attempt to distribute its products through different distribution center
that it will open. During the first establishment, the business purchases necessary raw materials
from surrounding factories.

1.2 Objectives of Best Bakery

Generally, Top bakery aims to:-

 Increase its customers and production level throughout times to increase its return.
 Satisfying the customers wants as an essential for the business survival and
competition.
Specifically, the Best Bakery aims to:-

 Provide the product through different distribution center

  Increase the efficiency of current resource
 Offer a quality services attached with selling product
1.3 Mission of Best Bakery

 To provide quality product at fair market price/value by using quality raw material
supplied by surrounding manufacturing companies.
 To assess the change in current demand and satisfy the customers need to increase the
business profit.
1.4 Vision of Best Bakery

 To build our Owen flour factory in 2012 E.C to improve the cost of production
which currently purchased from other factories and to save different production
cost incur associated with transportation.
 To open a new plant in surrounding small towns in order to ensure the
profitability of the business.

2. Considerations in Selecting the Project

First of all, the project will develop to increase the revenues of owner.

The main factors in selecting the project are:-

 The current unbalance between the growth of town and demand for consumption
of bread.
 The Location of former bakery business is mostly concentrated at the center of the
town. So, many people lived around the town face that has shortage of bread and
the existence of enough demand.

3. Location of Project
The project will be located in Addis Ababa town around kotabe, kebele 09. This location is
selected because of the following considerations:-

 In the kotabe there are high populations and low bakeries. This high population in turn
brings the increase of demand for projected business.
 This location will help to approach/easily get/ the raw materials from the nearest
towns/area when the business is constructed its own factory in the near future.
 Decrease current competitions highly observed in the town.
 Because of easily getting of the license from the government. This will be a helpful for
the business to be free from any problems will occurred if the business start to build its
own factory.

4. Source of capital
From the beginning of establishment the project is financed through individuals` investment and
loans from Banks. Each partner contributions for the establishment of the project presented in the
following table:

Partners’ investment

No. Partners name ETB contributed to the project

1 Machawa Miesa 64,000

2 Teshale Yosef 64,000
3 Bule Saba 64,000
4 Gudeta Geramu 64,000
5 Girja Elema 64,000
6 Girama Dekama 64,000
Total 324,000.00
The remaining sources of capital (i.e. 96,000.00) which is 20% of the total capital funded from
banks as loan.

5. Project Layout (Infrastructure)

The surrounding of the Top bakery project will be set in an attractive layout.

That means the buildings position for the convenience for management staffs, easy to safeguard
the surroundings for guards and safe to the Janitors to clean.

S/N ITEM SIZE QUANT. PURPOSE

1 Administrative office 10m2 1 For administration &mgmt

2 Baking bread room 180m 2 For baking/preparing

bread

3 Bath room 20m 2 For Washing

4 Material storage class 100m 1 For storing flour and other

materials

5 Class for guards 12 1 For keeping/safeguard

6 Staffs for employees 60 1 For resting during

tiredness of employees

7 Class for launch 40 1 For providing food for

employees
 6. Financial analysis
The project will start the operation with Birr 1million. Out of this 80% of the total amount of
investment is financed by the owners (384,000.00) and 20% (96,000.00) is from banks as a loan
which will be paid for the next five years. Most of this investment will expanded on planting the
business for future rather than increasing short term gain of owners. This means some fixed asset
of the business may use high portion of the investment.

The investment arrangement and expenditure expected is preserving on the following

constructive table with its respective category.

S/N Item/description Measurement Quantity Unit price Total price

1 Land purchase 60X30 - - 76,400
2 Land preparation M - - 2,000
3 Building M2 4 - 120,000
4 Plant mach.&equip. - - - 25,000
5 Man power & salary - - - 110,400
6 Supplies - - - 10,000
8 Working capital - - - 110, 600
9 Utilities - - - 15,600

10 Other costs - - - 10,000

TOTAL 480,000.00

6.1 Building

The proposed project will consist four different buildings. These are buildings for the purpose of
planting machinery, buildings for the purpose of storing purchased materials, buildings for
management and staffs and buildings for other purpose (i.e. showering house, bathrooms,
etc.).The investment arrangement for these buildings is presented as follows:-

S/N Description Measurement Quantity Unit price Total price

/Items/
1 Cement Pkt 150 400 15,000
 2 Roofing sheet M2 200 120 4,000
3 Nail Kg 10 40 400
4 Doors M2 10 1000 3,000
5 Windows M2 15 400 6,000
6 Labor costs - - - 10,000
7 Electric mainten. - - - 3,000
8 Design costs - - - 10,000
9 Water pipe - - - 10,000
10 Fire controller - - - 38,600
11 Other related material - - - 20,000
cost
Total 120,000.00

6.2 Plant machinery and material costs for production

S/N Description Quantity Unit price Total price

1 Gills 3 3000 9,000
2 Mabukia/ baldi 5 150 750
3 Plantary mixer 3 2000 6,000
4 Flour sifter 2 500 1,000
5 Working tables with 3 400 1,200
aluminum top

Total 17,950.00

6.3 Cost to supplies

S/N Description Measurement quantity Unit price Total

price
1 Wheat Flour Kg 200 650 13,000
2 Salt Kg 200 3.5 700
3 Oil/leaving agent Kg 5 50 250
4 Yeast Kg 20 30 600
5 Edible color & Kg 10 15 150
Flavor
 Total 14,700

Man power and supplies expense

S/N Position Qualification Experie No. Monthly Annual salary

nce req. salary
1 G.manager BSc in 2 1 2,500 30,000
production
2 Purchaser Diploma in 3 1 1,500 18,000
purchasing
3 Sales person Diploma in 3 4 1,500 18,000
marketing
4 Baker 10th grade& 2 4 1,000 12,000
above
5 Cashier Diploma in 2 1 1,500 18,000
accounting
6 Janitor 6th grade and 0 1 500 6,000
above
Guard 8th grade and 4 1 800 8,400
above
Total salary expense 110,400.00

6.3 Utility expenses

No. Description Measurement Consumption per Yearly cost in birr

month

1 Water Liter 10,000 4,800

2 Electric power Kw/h 15,000 7,200

3 Telephone 250 3,600

Total 15,600.00

6.4 Annual costs

Salary expenses………………………………………………..110,400

Interest expenses (96,000x14%).....…………………..13,440

Supplies expenses………………………………………………14,700

Utility expenses………………………………….15,600
Depreciation expenses:
Building………………………………......4,000
Machinery and equip…………………...5,000
Transportation expenses…………………………,,,9,500
Rent expenses………………………..……………7,000
Total ………….179,640

Depreciation expense- building= Cost_-salvage value = 120,000-0 =4,000

Estimated useful life 30

Depreciation expense- machinery & equip.=25,000-0 = 5,000

7. Market analysis

7.1 Market Size

In the recent period, the bread market showed a better growth rate than in previous years.
This was mainly because retail price cuts were fewer and less stringent, but it was also because
of the growing importance of added-value products, especially in the specialty bread and bakery
products sectors.

7.2 Products

Although the bakery products market grew faster than the traditional bread sectors and it to
became the target of price cuts, and growth slowed considerably in the past. However, there was
something of a recovery and its share of the total bread market showed an increase through time.
This project, the New Bakery, is planned to satisfy the current needs and wants of the people
around the area which there shows a shortage of bread suppliers in the near area. The demand for
bread shows an increase through time. Because of this reason we prefer to start the New Bakery
project in this area/place. Our sources of revenues will comes from the daily sale of bread.

7.3 Demand Forecasting

We expect/forecast our sales by using a quantitative method called trend projection/time series
method that enables us to predict the next annual sales. Depending on this trend we try to
forecast for the next two or more years sales as follows:

Years Estimated annual revenues (00,000)

2009 1.728
 2010 2.34
2011 2.52
2012 3.06
2013 3.60

This trend projection method uses the formula that is a linear relationship between annual sales
volume and the year that we can expect.
Y=a+bx where, x- no of years
a -intercept relationship
b- Slope relationship

X Y X2 Xy
1 1.728 1 1.728
2 2.34 4 4.68
3 2.52 9 7.56
4 3.06 16 12.24
5 3.60 25 18
x=15 y=13.23 x2=55 xy=44.21

Computation for the values of a and b:

a = x2(y)-x(xy) = 55(13.23)-15(44.21) = 64.65 =1.29
nx2-(x)25(55)-(15)2 50

b = nxy-x (y) = 5(44.21)-15(13.23) = 22.6 = 0.45

nx2-(x)25(55)-(15)2 50
So, here, y=a+bx
Y6 = 1.29 + 0.45(6) = 3.99
This means that the next 2011 annual sales will be 3.99x100,000= 399,000
Y7 = 1.29 + 0.45(7) = 4.44
Annual sales for 2012 will be 4.44x100,000 = 444,000
Y8 = 1.29 + 0.45(8) = 4.89 X 100,000 = 489,000

8. Project management
The proposed project will have consolidated management system controlled by the owners of the
project. This enables us to get the profit that we estimate and minimize the cost of administrative
through replace other employees being hired from outside. Besides, to business owners other
employees will be hired on permanent and contract basis.

8.1 Organizational structure

General Manager
 Finance dep`t
Purchasing dep`t Selling dep`t

Janitors Production dep`t

Guards

Bakers Other employees

8.2 Major Duties and responsibilities

From the beginning the major activities performed in organization will expect to done by the
owners to minimize the related initial cost and to increase the profitability of the business.
General Manager will be responsible to lead and control all other employees to attain the goal of
the organization. The purchaser will be responsible for search market and present the supplies
with reasonable market price.
The sales person will be responsible for selling the prepared product by searching and attracting
a good market segments to increase the share of market. Finance department will be responsible
to prepare and follow up the business budget and periodic control of cash inflows and out flows.
It also responsible to pay the employee`s salary and wage in time and in accurate ways. These all
are the major responsibilities related to administrative department.
The other major duties are related to production department. Under this department there are
responsibilities to prepare and bake a quality and attractive product for customers. They will be
responsible for the use of the organization`s input materials and other equipment in proper ways.
In addition to these responsibilities, other employees work in organization will have different
responsibility related to their jobs. These are the responsibility declared by the organization`s
administrative to increase the earning of the business and to ensure the benefit of employees.
These duties are the responsibilities given to guard, janitors and other contract employees.
Guard will be responsible for keeping the security of the surrounding of the business
organization. Janitors will be responsible to keep the organization clean and make the compound
attractive/ maintain the attractive site in the organization/. They are also responsible for the
proper use of the organization`s property in a cleaned and safety ways.
Generally, imposing these all responsibilities to each individual is important to keep the business
strength and increase the earning of the business and benefit of employees too.
 Best Bakery
Income Statement
For The Year Ended Sene, 2009-2013

2006 2007 2008 2009 2010

Revenues 172,800 234,000 252,000 306,000 360,000

Expenses:
Salary expense 110,400 110,950 120,500 125,500 127,800
Interest expense 13,440 14,100 15,000 16,000 16,950
Supplies expense 14,700 15,000 16,000 16,850 17,100
Utility expenses 15,600 15,750 16,100 16,150 16,900
Depreciation exp:
-Machinery 5,000 5,000 5,000 5,000 5,000
-Building 4,000 4,000 4,000 4,000 4,000
Travel expense 9,500 11,050 12,050 12,900 13,500
Rent expense 7,000 7,000 8,000 8,550 9,000
Total operating 179,640 182,850 196,650 204,950 210,250
expenses
Operating income (6,840) 51,150 55,350 101,050 149,750
Tax 20% -0- 10,230 10,690 20,210 29,950
Net income
(6,840) 40,920 42,760 80,840 119,800

Top Bakery

Opening balance sheet

Meskerem , 1, 2009
Assets:
Cash………………………………………………….…289,760
Investment for:
Supplies………………..………………………….14, 700
Machinery..........................................................25,000Utilities…………………………………….
……...15,600
Land……………………………………….……....78,400
Building……………………………………………120,000
Others ……………………………………………..10,000
Total assets………………………………………..……….480,000

Liabilities:
Accounts payable…………………………………………..96,000
Owner`s equity:
Owner`s capital………………………………….……384,000
 Total liabilities and owner`s equty………………………480,000

New Bakery
Statement of owner`s equity
For the year ended sene, 30,2009

Balance sheet meskerem1,2009 capital…………………………384,000

(-) net loss year sene,30,2009…………………………………….(6,840)
Balance on sene,30,2009……………………..…………………377,160

Top Bake
Balance sheet
Sene, 30, 2009
Assets:
Cash …………………………………………..206,260
Investment for:
Land……………………………………………78,400
Supply …………………………………………14,700
Machinery………………………………………25,000
(-) accu.deprn…………………………………..(5,000)
Building………………………………………….120,000
(-) accu,deprn……………………………………(4,000)
Utility……………………………………………..15,600
Others …………………………………………...15,600
Total assets……………………………………466.560

Liabilities:

Accounts payable………………………………………………82,560
Owner`s equity:
Capital ………………………………………………..……….384,000
Total liabilities and owner`s equity……………………………466,560

Top Bakery
Statement of cash flow
 For the year ended sene 30,2009

Source of cash 2009 2010 2011 2012 2013

Earnings before interest 20,280 65,250 70,350 117,050 166,700
and tax
Depreciation machinery & 5,000 5,000 5,000 5000 5,000
equip.
Depreciation building 4,000 4,000 4,000 4,000 4,000
Total source of cash 29,280 74,250 79,350 126,050 175,700
Cash out flows
Pay`t of interest 13,440 14,100 15,000 16,000 16,950
Pay`t of tax 0 10,230 11,070 20,210 29,950
Pay`t of long-term loan 19,200 19,200 19,200 19,200 19,200
Total cash out flows 32,640 43,500 45,270 55,410 66,100

Surplus/deficit (3,360) 30,720 34,080 70,640 100,600

Opening balance 0 (3,360) 27,390 72,660 143,300
Cash ending balance (3,360) 27,390 72,660 143,300 243,900

11. Project evaluation

Years Cash inflows Cumulative cash inflows
2009 (3,360) (3,360)
2010 27,390 24,030
2011 72,660 96,690
2012 143,300 239,990
2013 243,900 483,890

Payback period (PBP) =Years Before full recovery + unrecovered cost

Cash flow in next plan
= 4 + 269,300-239,990 = 4.12
243,900
PBP= 4 years and a month. This means that our initial investment cost will be covered after 4
years and 1 month cash inflows.
Net present value (NPV)
Years cash inflows PV of cash flows @ 10%
2009 (3,360) (3,360)x0.909091=(3,054.55)
2010 27,390 27,390x0.826446=22,636.4
2011 72,660 72,660x0.751315=54,590.55
2012 143,300 143,300x0.683013= 97,875.76
2013 243,900 243,900x0.620921=151,442.63
Total PV of cash inflows……………..……323,490.79
 (-) PV of cash outflows…………..…………..(269,300)
Net present value……………………….54,190.80
Therefore, this project is feasible because it has a NPV of greater than 0 or above the equilibrium
point.
Benefit cost ratio (BCR)
BCR = PV of cash inflows =323,490.8 =1.2
PV of cash out flows 269,300

So, the profit is greater than 1or higher than one.

9. Environmental feasibility

As it is known environmental issue is the current critical things which require detail study
whenever any business is attempt to established. This is helpful to assess the impact of that
project on the environment as well. Our project is planned to engaged in production process.
Thus, our project is highly concentrated on the use of electric power/energy to prepare/bake
bread. This enables us to minimize the pollution that our business can cause to the environment
if we use other sources of energy such as wood burning and use of kerosene. In addition to this
advantage the use of the source of power saves the product that our organization can produce in
different ways.
In fact, bakery project doesn`t have any noise and other influence with environment.

10. Risk assessment

The risks for top bakery are there might be natural and human disasters we cannot control natural
disasters because they are uncontrollable but we can control human made disasters by creating
awareness on our employees we are going to insure our assets by giving insurance.

Project implementation

In fact, at this stage there are different challenges that arise from evaluation of a project. A
project evaluated it is difficult to implement but with support if other advisory and consultants
who try to evaluate our project. We can conclude our project as follows:
 Although some fixed assets require high cost at the beginning ,it enables to plan the
project for future on good ground
 As the current earning of the project can cover all related expenses and yield profit to
owners, the length of period to cover initial cost never frustrate the project from
implementation.
When we decided to implement our project by using different methods and as well we expect
some difficulties at this stage. Some of them are:

 Technical problem related materials

  Shortage of distribution point
 Unfamiliarity with customers. This may affect the test of market during implementation

11. SWOT Analysis

11.1 Strength
 To prepare and bake a quality and attractive product for customer
 Increase market share by using low price strategy
 The organization use input materials and other equipment in proper way.
11.2 Weakness
 The size of bread is small
 Lack of skilled man power
11.3 Opportunity
 It is good for poorer societies because of low price
 It is good for the society to create job opportunities
11.3 Threat
 Lack of raw material
 Lack of electric power

12. Summary and conclusion

As we know Bakery ins Ethiopia is still a crucial and valuable activity because countries like
Ethiopia have citizens who want to consume bread more than once a day. The needs and wants of
the people for bread consumption in Adama town grow from time to time that enables us to
open/start the new bakery business project in the town specially in kebele,--------
In reality, Bakery project can cause less environmental pollution because it can be baked by
electricity. This enables us to get our license from the government of the country and the
administrative office of Adama town. Thus, government allows this kind of project to enhance
the access bread for dwellers by encouraging the newly open business firms and already existed
business organizations in Bakery project.
There are formal and informal as well as legal and illegal baking and selling of bread in the
country as a whole including rural and urban areas. However, we prefer our project to be formal
and legal one because we can distribute our product and compete as we want without price
fluctuation ( i.e. by setting our price affordable for the people) and enables us to accumulate our
own capital by providing and diversifying our production level through maintaining our clients
wants and serving them in satisfied ways.