MINI PROJECT

ON
MANUFACTURING PROCESS OF DAIRY MILK
CHOCOLATE

Submitted by Submitted to
Surya(1000021010) Dr. Preeti Sharma
Tushar(1000021182) (Assistant Professor)
Vishakha(1000021025)
Section-B

DEPARTMENT OF MANAGEMENT STUDIES, SCHOOL OF LIBERAL ARTS &

MANAGEMENT
DIT UNIVERSITY, DEHRADUN
May 2024
Introduction
Dairy Milk chocolate is a popular brand produced by Cadbury. It's known for its creamy
texture and rich flavour, making it a favourite among chocolate lovers worldwide.

The manufacturing process of Dairy Milk Chocolate

The manufacturing process of Dairy Milk chocolate involves various steps, each incurring
costs that need to be accounted for in the company's financial records:
Raw Materials: Account for the cost of cocoa beans, milk, sugar, and any other ingredients
used in the chocolate-making process.
Production Costs: Include labour costs, overhead expenses (such as utilities, rent for the
manufacturing facility), and depreciation of machinery used in production. Dairy Milk
chocolate
Processing and Packaging: Account for the costs associated with processing the cocoa
beans into chocolate, moulding, tempering, and packaging the finished product.
Quality Control: Costs related to quality assurance processes to ensure the chocolate meets
the company's standards.
Inventory Valuation: Apply appropriate accounting methods (such as FIFO or weighted
average) to value the chocolate inventory at different stages of production.
Distribution Costs: Include transportation, storage, and other expenses incurred in delivering
the chocolate to distributors or retailers.
Marketing and Administrative Costs: Allocate a portion of marketing and administrative
expenses to the production of Dairy Milk chocolate.

Analyse of Cost Drivers:

Raw Materials: Account for the cost of cocoa beans, milk, sugar, and any other ingredients
used in the chocolate-making process.
Production Costs: Include labour costs, overhead expenses (such as utilities, rent for the
manufacturing facility), and depreciation of machinery used in production.
Processing and Packaging: Account for the costs associated with processing the cocoa
beans into chocolate, moulding, tempering, and packaging the finished product.
Quality Control: Costs related to quality assurance processes to ensure the chocolate meets
the company's standards.
Inventory Valuation: Apply appropriate accounting methods (such as FIFO or weighted
average) to value the chocolate inventory at different stages of production.
Distribution Costs: Include transportation, storage, and other expenses incurred in
delivering the chocolate to distributors or retailers.
Marketing and Administrative Costs: Allocate a portion of marketing and administrative
expenses to the production of Dairy Milk chocolate.

Particulars Cost per unit Total Cost

Raw Material
Sugar=3,00,000
Cocoa Butter=3,00,000
Cocoa Solids=3,20,000 5.16 23,20,000
Peanuts=2,00,000
Milk solids=2,00,000
Chocolate coated Raisins=4,00,000
Almonds=3,00,000
Vanillin=1,00,000
Honey=50,000
Boston baked beans=1,50,000
Direct Labour=7,00,000 1.56 7,00,000
Carriage on material=2,42,500 0.53 2,42,500
Prime Cost 7.25 32,62,500
Factory Expenses:-
Fixed-
Depreciation on Plant and
Machinery=2,57,500
Rent=1,50,000
Power and consumable stores=1,50,000 2.35 10,57,500
Factory insurance=1,50,000 Supervisors
salary=50,000
Variable-
Electricity charges=50,000
Power and consumable stores=1,00,000
Running expenses of Machine=1,50,000

Factory Cost:- 9.60 43,20,000

Office and Administration Expenses:
Office staff salary=10,00,000
Rent=80,000
Computer=1,20,000 4.40 19,80,000
Furniture=3,00,000
Telephone=10,000
Carriage outward=20,000
Depreciation on furniture=50,000
Salaries to administrative staff=3,70,000
Rent, rates and taxes=30,000

Office and administrative cost:- 14.00 63,00,000

 Selling and Distribution Expenses
Advertisement=4,00,000
Petrol=1,00,000 2.00 9,00,000
Delivery vehicles=2,50,200
Maintenance of delivery vehicles=49,800
Packing rates=50,000
Bad debts written off=1,00,000
Total Cost 16.00 72,00,000
Net Profit 4.00 18,00,000
Sales 20.00 90,00,000
Total Output=4,50,000 units

Cost-Volume-Profit (CVP) Analysis

Total Variable Cost per Unit:
• Prime Cost per Unit + Factory Expenses (Variable Portion) per Unit + Selling and
Distribution Expenses per Unit
• 7.25 + (Unknown Variable Portion of Factory Expenses) + 2.00 (assumed all Selling
and Distribution Expenses are variable)
Contribution Margin per Unit:
• Selling Price per Unit - Total Variable Cost per Unit (calculated above)
• We cannot calculate the exact Contribution Margin per Unit due to the unknown
variable cost.

Analyze the cost drivers

• Raw Materials: This seems to be a significant cost driver, especially considering the
high cost of chocolate-coated raisins and almonds. Exploring alternative ingredients or
optimizing usage could be beneficial.
• Direct Labor: While not the highest cost, optimizing labor efficiency through process
improvements could be an area for cost reduction.
• Factory Expenses (Fixed): These expenses, like depreciation and rent, won't change
significantly with production volume in the short term. However, long-term planning
for machinery upgrades or rent negotiations could be cost-saving strategies.
• Office and Administration Expenses (Fixed and Variable): Analysing the
breakdown of these expenses could reveal areas for cost reduction. Optimizing office
operations, negotiating better deals for services like rent or telephone, or exploring
technology solutions could be potential strategies.
• Selling and Distribution Expenses: Exploring alternative advertising methods,
optimizing delivery routes, negotiating with delivery vehicle vendors, and minimizing
packing waste could be areas for cost reduction.
Identify Cost Optimization Opportunities:
Raw Materials:
Negotiate with suppliers: Explore bulk purchase discounts or negotiate better pricing with
existing suppliers for high-cost ingredients like chocolate-coated raisins and almonds.
Ingredient Substitution: Consider alternative ingredients with similar taste profiles but lower
costs. This could involve exploring different types of cocoa beans, sugars, or nut alternatives.
Optimize Usage: Analyze production processes to minimize waste of raw materials. This
could involve proper measuring techniques or exploring ways to utilize leftover ingredients.
Production Costs:
Labor Efficiency: Evaluate production processes to identify opportunities for automation or
streamlining tasks, potentially reducing labor costs.
Waste Reduction: Analyze production lines to identify and minimize waste during processing,
moulding, and packaging. This could involve optimizing equipment settings or implementing
better waste collection systems.
Factory Expenses (Fixed):
Long-Term Planning: While fixed in the short term, consider long-term strategies like
negotiating lower rent with facility upgrades or exploring energy-efficient machinery
replacements to minimize depreciation costs in the future.
Office and Administration Expenses (Fixed and Variable):
Cost Breakdown Analysis: Analyze the breakdown of these expenses to identify areas for
reduction. This could involve optimizing office operations, exploring cost-saving measures for
services like rent or telephone, or implementing technology solutions to reduce administrative
tasks.
Selling and Distribution Expenses:
Marketing Strategies: Evaluate the effectiveness of current advertising methods. Consider
exploring alternative or targeted advertising strategies that deliver a higher return on
investment.
Delivery Optimization: Analyze delivery routes to optimize efficiency and minimize fuel
costs. Consider outsourcing delivery if a third-party can offer a better rate.
Negotiate with Vendors: Negotiate better deals with delivery vehicle vendors or explore
leasing options instead of owning the vehicles.
Packaging Optimization: Analyze packaging materials and processes to minimize waste and
associated costs. Explore sustainable or reusable packaging options where feasible.
Debt Management: Develop strategies to minimize bad debts by implementing stricter credit
control measures.
Recommendations for Optimizing Costs and Improving Efficiency
Raw Material Cost Reduction (Timeline: Ongoing)
Action: Negotiate bulk purchase discounts with existing suppliers, particularly for high-cost
ingredients like chocolate-coated raisins and almonds.
Potential Cost Savings: 5-10% on the cost of these ingredients.
Action: Analyze ingredient options. Explore alternative cocoa bean origins, sugar types, or nut
replacements with similar taste profiles but lower costs.
Potential Cost Savings: Up to 3% on overall raw material costs.
Action: Implement stricter inventory management and production planning to minimize raw
material waste.
Potential Cost Savings: 2-5% on overall raw material costs.

Production Process Optimization (Timeline: 3-6 months)

Action: Conduct a production line efficiency analysis. Identify opportunities for automation or
streamlining tasks, potentially reducing labor costs.
Potential Cost Savings: 2-4% on direct labor costs.
Action: Implement waste reduction procedures during processing, molding, and packaging.
This could involve optimizing equipment settings or utilizing leftover ingredients.
Potential Cost Savings: 3-5% on overall production costs.

Long-Term Cost Reduction Strategies (Timeline: 12-24 months)

Action: Develop a long-term facility management plan. Explore options for negotiating lower
rent with potential facility upgrades or replacing existing machinery with energy-efficient
models to minimize depreciation costs in the future.
Potential Cost Savings: Varies depending on negotiation outcomes and chosen upgrades, but
could lead to significant cost reductions in the long run.

Office and Administration Cost Optimization (Timeline: Ongoing)

Action: Conduct a detailed breakdown and analysis of office and administration expenses.
Identify areas for cost reduction, such as optimizing office operations, negotiating better deals
for services like rent or telephone, or implementing technology solutions to reduce
administrative tasks.
Potential Cost Savings: 3-7% on overall office and administration expenses.
Selling and Distribution Cost Optimization (Timeline: Ongoing)
Action: Evaluate the effectiveness of current advertising methods. Explore alternative or
targeted advertising strategies with a higher return on investment.
Potential Cost Savings: Varies depending on the effectiveness of the new strategies, but could
lead to significant cost reductions in marketing expenses.
Action: Analyze delivery routes and outsource delivery if a third-party can offer a better rate
or optimize existing routes for fuel efficiency.
Potential Cost Savings: 2-5% on overall delivery costs.
Action: Negotiate better deals with delivery vehicle vendors or explore leasing options instead
of owning the vehicles.
Potential Cost Savings: Varies depending on negotiation outcomes, but could lead to cost
reductions in vehicle ownership or maintenance.
Action: Analyze packaging materials and processes to minimize waste and associated costs.
Explore sustainable or reusable packaging options where feasible.
Potential Cost Savings: 2-4% on overall packaging costs.