A Proposed Plantation of Shade- Grown Arabica Coffee

And Its Distribution To Coffee Shops in Cebu City

___________________________

A Project Feasibility Study Presented to

The Faculty of the College of Commerce

University of San Jose – Recoletos

Cebu City, Philippines

___________________________

In Partial Fulfilment

Of the Requirements for the Degree

BACHELOR OF SCIENCE IN ACCOUNTANCY

and

BACHELOR OF SCIENCE IN MANAGEMENT ACCOUNTING

_______________________________

By

ARWIN JASON B. ABUNDO NOELYN JOY G. ESPINA

HAN KIMBERLY B. LASTIMOSA MAE BUENA Q. MEDALLA

MAE CONCEPCION P. SULLA

DECEMBER 2017
 ACKNOWLEDGMENT

This project feasibility study, a commendable finished output of the proponents’

days and nights of lengthy effort and sacrifices, would not have been completed without

the aid, supervision and support of the following:

First, to Dr. Victoria L. Digao, CPA, the proponents’ most supportive and ever

considerate project feasibility teacher, for her valuable, timely, and helpful inputs,

comments, her understanding, suggestions and encouragement from preparation,

development up to the presentation of this study. Her words of wisdom motivated the

proponents and inspired them to be more thorough and work even harder to accomplish

this study.

To the heads of different government and barangays for their active

responses to the queries of the proponents by providing them with documents that are

necessary for the completion of the study. The government officials have also

suggested more appropriate routes to take for the research to go smoothly.

To the respondents, for taking time out of their busy schedules, to answer the

surveys which are tailor-made to provide helpful data for the researchers.

To the proponents’ parents, who have financially, emotionally, and spiritually

supported the proponents. They have provided the proponents’ the space and time they

needed in order to complete the research.

To the proponents’ classmates and friends, for inspiring the proponents to

triumph over the challenges they have encountered. They had also provided the
proponents comfort knowing that they share in the proponents’ struggle in the

completion of the study.

To the Panelists of this Study, for lending their time and intellect in improving this

book. For their recommendations and suggestions motivated the proponents to do

better in refining the content of their study.

Lastly, to the Most Holy Triune God, for His unlimited benevolence and

inspiration, who is very vital in the course of making this laborious study. He has

provided the proponents the strength to go on and to finish what they have started.

ARWIN JASON B. ABUNDO

NOELYN JOY G. ESPINA

HAN KIMBERLY B. LASTIMOSA

MAE BUENA Q. MEDALLA

MAE CONCEPCION P. SULLA

 5

TABLE OF CONTENTS

TABLE OF CONTENTS..............................................................................1
LIST OF FIGURES......................................................................................4
LIST OF NOTES..........................................................................................4
LIST OF TABLES........................................................................................5
I. THE PROBLEM AND ITS SCOPE..............................................................6
INTRODUCTION................................................................................6
Rationale of the Study.................................................................6
STATEMENT OF THE PROBLEM.....................................................8
SIGNIFICANCE OF THE STUDY.......................................................8
Investors......................................................................................9
Entrepreneurs..............................................................................9
Different Municipalities of Cebu...................................................9
Government agencies...............................................................10
The Researchers.......................................................................10
Future Researchers...................................................................10
RESEARCH DESIGN.......................................................................11
Research Method Used.............................................................11
Environment...............................................................................11
Research Methods and Instruments Used................................13
Research Procedure..................................................................13
Limitation of the study................................................................15
DEFINITION OF TERMS...................................................................17
II. TECHNICAL ASPECT...............................................................................19
PRODUCT DESCRIPTION..............................................................19
MATERIALS.....................................................................................20
PLANTATION FLOW........................................................................23
Establishment of the Coffee Plantation.....................................24
Lay-outing and Holing................................................................28
Transplanting.............................................................................29
Care and Maintenance..............................................................30
Harvesting..................................................................................35
Processing.................................................................................36
Packaging and Delivery.............................................................38
PRODUCTION CAPACITY...............................................................38
QUALITY CONTROL........................................................................39
SITE SPECIFICATION.....................................................................45
Farm Location............................................................................45
Farm Buildings...........................................................................47
Nursery......................................................................................47
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UTILITIES.........................................................................................48
WASTE MANAGEMENT..................................................................49
III. MARKETING ASPECT..............................................................................52
TARGET MARKET...........................................................................52
PAST POPULATION........................................................................53
DEMAND..........................................................................................54
PROJECTED POPULATION OF COFFEE FRANCHISES..............65
PROJECTED ANNUAL DEMAND....................................................66
SUPPLY........................................................................................... 66
PROJECTED SUPPLY.....................................................................70
PROJECTED MARKET SHARE.......................................................71
SALES FORCE................................................................................ 72
PRICING STRATEGIES...................................................................73
DISCOUNTS.................................................................................... 75
CHANNEL OF DISTRIBUTION........................................................76
BRANDING AND PACKAGING........................................................77
ADVERTISING AND PROMOTION STRATEGIES..........................79
STORAGE AND WAREHOUSING...................................................81
IV. MANAGEMENT ASPECT.........................................................................83
MANAGEMENT DURING THE PRE-OPERATING PERIOD...........83
Project Timetable.......................................................................83
MANAGEMENT DURING THE OPERATING PERIOD....................91
Form of Organization.................................................................91
Organizational Structure............................................................92
Job Title and Description...........................................................93
Personnel Specification.............................................................95
Working Schedule.....................................................................97
Recruitment Procedure..............................................................97
Compensation Plan...................................................................98
Employee Benefits.....................................................................99
Management Policies................................................................99
Violations and Sanctions.........................................................101
V. LEGAL AND TAXATION ASPECT.........................................................103
LEGAL ASPECT.............................................................................103
Registration of the Business Name.........................................103
Business Permit Procurement.................................................104
Application for Social Security System (SSS) Membership....106
Application for PhilHealth Insurance Membership..................107
PAG-IBIG Registration............................................................107
DOLE Registration...................................................................108
TAXATION ASPECT......................................................................108
Withholding Tax.......................................................................108
Documentary Stamp Tax.........................................................109
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Income Tax..............................................................................109
VI. FINANCING ASPECT.............................................................................111
Source of Financing.................................................................111
Project Cost.............................................................................112
VII. FINANCIAL ASPECT..............................................................................119
FINANCIAL ASSUMPTIONS...........................................................119
FINANCIAL STATEMENT ANALYSIS............................................159
VIII. SOCIO/ECONOMIC DESIRABILITY......................................................176
Government.............................................................................176
Farmers...................................................................................176
Target Market..........................................................................177
Environment............................................................................177
Community...............................................................................178
Philippine economy.................................................................178
Global economy.......................................................................178
Coffee Industry........................................................................179
Ecology....................................................................................179
Coffee Consumers...................................................................180
Competitors.............................................................................180
IX. STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS ANALYSIS
.................................................................................................................183
SWOT MATRIX..............................................................................184
STRENGTHS................................................................................. 185
WEAKNESSES.............................................................................. 185
CONVERSION OF WEAKNESS TO STRENGTHS.......................186
OPPORTUNITIES..........................................................................187
THREATS.......................................................................................188
CONVERSION OF THREATS TO OPPORTUNITIES....................188
X. SUMMARY, FINDINGS, CONCLUSION, AND RECOMMENDATIONS 189
SUMMARY.....................................................................................189
FINDINGS...................................................................................... 191

REFERENCES
APPENDICES
Survey Letter and Questionnaire A
Letter to Panelists B
Certification C
SSS Contribution Table D
Philippine Business Registry Application Form E
 8

Renewal of Mayor’s Business Permit F

PHIC Premium Contribution Table G
Pag-Ibig Member’s Data H
Application Form for Business Permit I
Business Name Application Form J
Annual Income Tax Return (BIR Form 1702-RT) K
Documentary Stamp Tax Declaration L
Application for Registration (BIR Form 1903) M
Quarterly Income Tax Return (BIR Form 1702Q) N
Payment Form (BIR Form 0605) O
Fire Safety Evaluation Clearance P
PhilHealth Employer Data Record Q
PhilHealth Employee Data Record R
CURRICULUM VITAE
DOCUMENTATION

LIST OF FIGURES
FIGURE 1PLANTATION FLOW...................................................................................23
FIGURE 2. RECOMMENDED PLANTING DISTANCE (3X3 M).............................29
FIGURE 3. VIEW FROM THE MAIN ROAD...............................................................46
FIGURE 4. VIEW OF SITE FENCE.............................................................................47
FIGURE 5. CHANNEL OF DISTRIBUTION................................................................77
FIGURE 6.PRIMERAPRESKO LOGO........................................................................78
FIGURE 7. PACKAGING FOR PRIMERA PRESKO................................................79
FIGURE 8. SOCIAL MEDIA SITE FOR PRIMERA PRESKO..................................81
FIGURE 9. WAREHOUSE FOR STORING BEANS.................................................82
FIGURE 10. GANTT CHART PRE-OPERATING ACTIVITIES...............................86
FIGURE 11. ORGANIZATIONAL CHART..................................................................93
FIGURE 12. SCHEMATIC DIAGRAM.......................................................................181
FIGURE 13. SWOT MATRIX......................................................................................184
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LIST OF NOTES
NOTE 1 RESEARCH COST...........................................................................113
NOTE 2 PERMITS AND LICENSES..............................................................114
NOTE 3 LAND................................................................................................114
NOTE 4 FARMHOUSE...................................................................................114
NOTE 5 OFFICE EQUIPMENT......................................................................115
NOTE 6 FARM TOOLS..................................................................................116
NOTE 7 FURNITURE AND FIXTURES.........................................................116
NOTE 8 RAW MATERIALS............................................................................116
NOTE 9 FREIGHT-IN.....................................................................................116
NOTE 10 PRODUCTION SUPPLIES...............................................................117
NOTE 11 OFFICE SUPPLIES..........................................................................117
NOTE 12 UTILITIES.........................................................................................118
NOTE 13 CLEANING SUPPLIES.....................................................................118
NOTE 14 SALARIES AND WAGES.................................................................118
NOTE 15 PROFESSIONAL FEES...................................................................118
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LIST OF TABLE

TABLE 1. SUGGESTED SHADE REGULATION...................................................................................24

TABLE 2. ARABICA GROWTH REQUIREMENTS................................................................................25
TABLE 3. ANNUAL PRODUCTION CAPACITY....................................................................................39
TABLE 4. GUIDE IN THE EVALUATION PROCESS............................................................................41
TABLE 5. COFFEE SHOP POPULATION IN THE PHILIPPINES (2009-2013)...............................54
TABLE 6. COFFEE VARIETIES FREQUENTLY PURCHASED.........................................................56
TABLE 7. COFFEE FORMS FREQUENTLY PURCHASED................................................................57
TABLE 8. PACKAGES PREFERRED BY THE RESPONDENTS.......................................................58
TABLE 9. RESPONDENT’S MONTHLY DEMAND FOR REGULAR COFFEE................................59
TABLE 10. KNOWLEDGE OF THE ARABICA VARIETY.....................................................................60
TABLE 11. KNOWLEDGE OF THE SHADE-GROWN MODEL OF GROWING COFFEE.............61
TABLE 12. MARKET WILLINGNESS TO PURCHASE........................................................................61
TABLE 13.PHP170 FOR UNROASTED BEANS AS REASONABLE.................................................62
TABLE 14.PHP400 FOR ROASTED BEANS AS REASONABLE......................................................62
TABLE 15.PHP600 FOR GROUND BEANS AS REASONABLE........................................................63
TABLE 16. DEMAND FOR SHADE-GROWN ARABICA COFFEE.....................................................64
TABLE 17. TOTAL COFFEE CONSUMED IN THE PHILIPPINES.....................................................65
TABLE 18. PROJECTED COFFEE FRANCHISE POPULATION.......................................................65
TABLE 19. PROJECTED ANNUAL DEMAND........................................................................................66
TABLE 20. MARKET SUPPLIERS IN CEBU..........................................................................................67
TABLE 21. PHILIPPINE LOCAL PRODUCTION...................................................................................68
TABLE 22. PROJECTED LOCAL PRODUCTION OF COFFEE.........................................................68
TABLE 23. PHILIPPINE INTERNATIONAL IMPORTS.........................................................................69
TABLE 24. PROJECTED PHILIPPINE INTERNATIONAL IMPORTS OF COFFEE........................70
TABLE 25. PROJECTED SUPPLY OF COFFEE IN THE PHILIPPINES...........................................70
TABLE 26. PROJECTED SUPPLY OF COFFEE FOR COFFEE SHOPS IN CEBU.......................71
TABLE 27. PROJECTED MARKET SHARE...........................................................................................72
TABLE 28. PROJECTED SELLING PRICE............................................................................................74
TABLE 29. PREFERRED TERMS OF SALE..........................................................................................75
TABLE 30. WORKING SCHEDULE.........................................................................................................97
TABLE 31. WAGE RATES OF THE EMPLOYEES...............................................................................99
TABLE 32. VIOLATIONS AND SANCTIONS........................................................................................102
 11

EXECUTIVE SUMMARY

There is an increasing demand shown in the coffee industry as locals are

increasing their consumption of coffee products, notably in the area of coffee shops.

Furthermore, a growing amount of imports are affecting the economy. The

implementation of a plantation will cut back imports and give jobs to local farmers in

Barangay Jolomaynon, Dalaguete. Environmental concerns are also an issue which is

why the shade-grown model of planting is used.

The proposed plantation will have a pre-operating period of 3 years and will start

operations on the 4th year or on the year of first harvest. The plantation will yield red

coffee cherries which will be dried, hulled and roasted into roasted coffee beans. A

partnership is recommended to start up this project with an initial capital of Php

7,618,392.50 with two partners. The partnership can take a loan of Php 1,500,000.00

with Land Bank which caters specifically to agriculture and can finance 80% of the

farm’s capital requirements. The financial projections revealed that the entity shall

generate profit on the year of harvest and have an average return of around 30% every

year once profits are stable. The entity however cannot payback within 8 years which is

to be expected for agricultural products.

Based on the findings, the proponents have determined that the proposal is

feasible only when there are sales on the first year because of high start-up costs. The

reasons are that it would benefit not only the consumers but also other sectors of
 12

society such as the government, the farmers, the coffee industry as a whole, and the

environment. Therefore, it is recommended for implementation.

 1

CHAPTER I

THE PROBLEM AND ITS SCOPE

INTRODUCTION

Rationale of the Study

Coffee has been a very popular beverage these days, it has been part of

the daily intake of the Filipinos, especially among students and those working on

night shift. There would be an endlessdemand for coffee because work and

studies are endless, too. Coffee shops serving diverse types of coffee is

becoming the home of students who wanted to study in a peaceful and friendly

ambiance. It has also been a venue for common social meetings to some

businessmen. Coffee shops are everywhere in the city. More and more

entrepreneurs engage themselves in establishing coffee-related businesses,

resulting in coffee becoming the second-largest traded commodity next to oil.

(Pendergrast, 1999). However, this fact has been widely-debated. Coffee is not

the second largest traded commodity, but it is still a large industry [ CITATION Tan17

\l 1033 ],while this is a fact in 1970s, but is not the case anymore [ CITATION Joh17 \l

1033 ]. Domestic consumption of coffee would climb up to 100,000 tons a year

and demand for it is still growing (Philippine Coffee Board). Coffee covers not

only the local market but also the international market thus giving large

opportunities to be a possible worthwhile investment in Cebu.

Though some might see the negative effects in consuming coffee and

some would think it as a bad habit to drink coffee, research already proved that

there are several health benefits in coffee (Nurses’ Health Study, 2001). The
 2

benefits of coffee have been researched quite well and somehow it has led to

many benefits such as reducing the risk of stroke, type II diabetes, Parkinson’s

disease and certain types of cancers (Veronica Setiawan). Coffee also protects

the human body for it contains antioxidants that serve as body warriors protecting

against free radicals that damage cells within the human body. Students

consume coffee because it boosts their physical performance. It is because of

coffee contains caffeine that increases the adrenaline levels in the human body

[ CITATION Ans92 \l 1033 ].

With a lot of benefits coming from coffee, the researchers have decided to

conduct this study on a proposed plantation to determine its viability and

profitability. Not only because of the number of health benefits had made the

researchers pursue this study but also because coffee is an important commodity

locally and globally. Coffee being a major export commodity and also one of the

top agricultural exports (FAO Statistics Division) would help the locality to

develop their economy.

Economical purpose and health benefits are the core purposes of this

study. Research had proven its benefits to the human body and statistics have

shown that coffee is one of the valuable products exported by developing

countries.
 3

STATEMENT OF THE PROBLEM

The purpose of the study was to determine the viability, practicability,

profitability, and feasibility of the Proposed Plantation and Distribution of Shade-

grown Arabica Coffee and Its Distribution. Specifically, this study answered the

following questions:

1. Is the Proposed Plantation of Shade-grown Arabica Coffee and Its

Distribution feasible under the following aspects?

1.1 Technical;

1.2 Marketing;

1.3 Management;

1.4 Financing;

1.5 Legal and Taxation;

1.6 Financial;

1.7 Socio-Economic Desirability; and

1.8 Strength, Weaknesses, Opportunities, and Threats

2. Based on the findings, what recommendations may be given for the

proposed project?

SIGNIFICANCE OF THE STUDY

 4

The main objective of conducting this study is the eagerness to test its

viability in the market. Data provided in this book is designed to provide different

sectors of the community as discussed in the following paragraphs.

Investors
From the study, the investors can assess if the industry is worth investing.

It will show them the risk and reward, opportunity costs and overall return on their

investment. Investors will have a view on the quantitative or financial side of the

industry. The industry’s financial and quantitative reports are also presented in

this study in which the investors may know how the industry is currently

performing financially for them to formulate practical and reasonable decisions.

Entrepreneurs
The proposed study provides knowledge to entrepreneurs who want to

engage in the same industry. Through the study, they can assess the probable

outcome of the business they are about to undertake. This will help them

understand the business from the technical down to its financial aspect. It will

also give them the industry’s position in the marketplace, and its financial

situation. It would also include information on its major competitors, primary

customers, and any relevant industry trends. This sort of overview provides

entrepreneurs with an objective assessment of the industry’s current situation

and opportunities.

Different Municipalities of Cebu

Should the proposed studyprove to be both feasible and desirable, the

information provided in this study can prove valuable to educate the farmers in
 5

the municipalities that would implement this project. This can be used to develop

a strategic plan to provide livelihood programs for the municipalities’ farmers thus

translating their ideas into measurable goals. This will help their livelihood

projects come into a reality and aid them in breaking down their workforce to

further create a series of concrete steps and outline on how the steps can be

implemented.

Government agencies
This study would give additional information to the different government

agencies like Department of Agriculture, Department of Environment and Natural

Resources and other agencies that will benefit from the proposed study. This

would provide them statistics like the number of farmers willing to be part of the

industry; development in procedures undertaken like alternative ways to boost

production; and thecurrent state of the production or appropriate places that it

can appropriately be planted.

The Researchers
In the process of accomplishing this study, the researchers invested their

time, money, efforts, expertise, knowledge and skills which had greatly improved

themselves in terms of developing good practices in frugality, enhancing their

expertise and skills, and updating their learnings from the subject taken. This had

helped the researchers prepare themselves to become productive individuals of

the society from the exposure to become more effective, efficient and competent

as they venture their future careers.

 6

Future Researchers
This proposal will help future researchers in achieving the completion of

their related studies by enlightening them with new ideas. This will serve as their

guide in making their own studies. They can also use this as the basis as to what

they really want as an output of their study and gives them a clearer

understanding of the topics. They can use this book as an additional reference

for the completion of their studies.

RESEARCH DESIGN
The research design refers to a scheme or plan of how the research will

be conducted. The quality of output depends largely upon the research design or

method used in the study.

Research Method Used

The descriptive survey method is chosen to be as a basis for this

research. It is used because the objective of the study is to see a general picture

of the population in terms of their social and economic characteristics, opinion,

and their knowledge.

Environment
This study covered the coffee shops located in Metropolitan Cebu,

specifically along Mango Avenue, F. Ramos Street, Ayala Mall, SM City Cebu, N.

Escario Street and IT Park. Mango Avenue, also called General Maxilom Ave.

covers from Mango Square Mall to Mango Park. Ayala Mall is located at Cardinal

Rosales Ave, Cebu City, Cebu. SM City Cebu is located beside Kaohsiung

Street. IT Park is located on Jose Maria del Mar St., Apas, Cebu City
 7

Figure 5.1

Map of Environment
Population and Respondents

There are a lot of coffee shops in Cebu but a majority of them are from

franchises. An ocular scan was used to determine coffee shops and skipping

over repeating franchise stores. The researchers surveyed a total of 33

independent coffee shops but only 19 coffee shops responded.

Coffee shops
Number of Number of
located within a 50-
population (N) respondents (n)
meter radius

1. Ramos Street and

8 6
Mango Ave.

2. SM Cebu 2 2

3. Ayala Mall 2 1
 8

4. Escario Street 6 3

5. IT Park 7 6

6. Internet Questionnaire 8 1

Total 33 19
The population consists of the large coffee franchises such as Starbuck’s,

Bo’s, and The Coffee Bean & Tea Leaf, as well as smaller independent specialty

coffee shops such as KohiNori and Workplace Cafe, which explained the large

differences between their demand volume.

Research Methods and Instruments Used

The measurement device used by the researchers to gather data is

primarily the researcher-made questionnaire. It is the most common instrument

to use for gathering data. It will only require the respondent’s small amount of

time to answer the questions. The respondents were given choices of answer,

which makes it easier compared to other instruments.

Another instrument used to gather information was the interviews with

some managers. So far, two managers have been interviewed and their input

had greatly helped the researchers in the analysis

In addition, electronic sources and magazines on coffee demand and

population were likewise utilized. Reliable sources include the Philippine

Statistics Authority, The Entrepreneur Philippines magazine, and newspaper

clippings from local news.

 9

Research Procedure
The following are the statistical technique used in treating the data in

depth solution of the problem raised in the study.

1. Weighted Mean. This refers to the overall average responses of

the respondents in the study. This is used in determining the average

demand of every coffee shop. Respondents that abstained were excluded

from the total number of respondents. The questionnaire has two

questions that apply this formula which are on questions that determine

the demand for coffee in general and on the demand for the shade-grown

Arabica coffee.

FORMULA:

µ=ƩFx
n

Where: µ = weighted mean

Ʃ = summation

F = frequency

x = mean

n = total number of respondents

2. Multiple Choice Ranking. Some data have multiple choices and

are not mutually exclusive. These data are arranged by the most popular

among the choices. To determine the rank, the frequency of a choice is

divided by the total number of respondents. The choice which has the

highest frequency is chosen to be number one. Choices with no answers

 10

were still shown but not included in the ranking. Respondents that

abstained still appeared in the tabular forms. Questions that use this

ranking method pertain to respondents’ preference on: coffee varieties,

coffee forms, and preferred suppliers.

3. Mutually Exclusive Choices. Some data are mutually exclusive

which means that one choice cannot co-exist with the other. These data is

arranged and interpreted with whether or not their answer is positive,

negative, or if the respondents abstained. The most popular choice is

considered and if a choice is unpopular, certain strategies must be

developed in marketing. Some answers are carried forward to determine

the projected annual demand.

4. Arithmetic-Geometric Method. Data is gathered mainly from the

Philippine Statistics Authority on national demand and supply of coffee

from the years of 2011 – 2015. These trends are extremely useful in

predicting the projected demand as well as where the current suppliers of

coffee come from. Other sources come from The Entrepreneur Philippines

to determine the target market. The trend of changes is computed by

getting the increasing or decreasing percentages and projecting it to the

next periods. Outliers are excluded from the data gathered.

Limitation of the study

There are factors that hinder the proponents from obtaining the exact data

needed for the study. These are the factors:

 11

Selected Respondents

Respondents must have business that is connected with the proposed

project. Managers are best suited to answer the survey but if there are no

managers, baristas are given the survey form as baristas have an estimate on

the flow of coffee products.

Confidential Information

Respondents reject or deny the request of having a survey because of

confidential information that may be given to the proponents.

Time

The researchers were not able to achieve the total population of

respondents to be surveyed because of the lack of time. A sample of the

population is required and must be applied to the total population. Another

constraint that the researchers experienced was that sometimes the manager is

not present at the time the researchers conducted the survey

Sampling Risk

The researchers acknowledge the existence of the probability that the

sample does not accurately represent the population.

Accessibility of Information

Some reliable sources offer accurate and relevant information but require

large fees. This source offers more reliable information but at a price that

significantly exceeds the benefits

 12

DEFINITION OF TERMS
Some terms used in this book connotes different meanings thus they are

defined hereunder:

Commercial polyculture

This is a type of shade where coffee is grown under planted trees.

Canopies are pruned regularly and epiphytes are removed. This involves the use

of more fertilizers. Shade level is around 30 – 60%.

Epiphytes

This is a plant growing on another plant for physical support and do not

negatively affect the host. Examples are mosses and orchids. This is used as an

indication of biodiverse health.

Full sun

This is a type of shade where there is a lack of tree canopies or one where

shade is not needed.

Mulch

This is a layer of material added to the soil surface. It may be artificial or

natural.

Overstory
 13

This is a type of tree with dense foliage and taller reach and shades the

understory which contains younger or smaller trees.

Rustic

This is a type of shade with little to no alteration of native vegetation.

Shade level is around 70 – 100%.

Shaded monoculture

This is a type of shade where coffee is grown under an overstory of only

one or two tree species. Canopies are heavily pruned. Shade level is around 10

– 30%.

Shade-grown Method

This method employs the use of dense overstore trees as shade for the

coffee trees,also referred to as the traditional method.

Sun-grown Method

This method employs the use of artificial fishnets as shade for the coffee

trees.

Traditional polyculture

This is a type of shade where coffee is grown under a combination of

native forest trees and planted trees, including fruits and vegetables. Shade level

needed is around 60 – 90%.

Varieties
 14

This is a rank lower than of species. In this study, examples are the

Coffea Arabica variety,and the Coffea canephora variety, to name two.

CHAPTER II

TECHNICAL ASPECT

In order for a product to be widely accepted, it must have a quality

different from what is available in the market. The quality of a product would

somehow depend on its raw materials, machines and equipment used, and also

as to how they perform the production process.

This chapter states the necessary materials and the equipment and tools

that are to be used in production. It is also discussed in this chapter the plant

location and layout, production capacity, quality control implemented, utilities and

waste management.

PRODUCT DESCRIPTION
The proposed study is about the production and distribution of Arabica

coffee beans to coffee shops located in Cebu City. Arabica coffees, locally known

as “Kapeng Tagalog” are considered to be the best variety of coffee in the

countries because of its excellent flavor and aroma.

This variety is characterized by wavy leaf margins, light green color, and

thin leaf. Its flowers are white and creamy with short pedicels. The berries are

oblong in shape, measuring about 1.5 cm long, green when immature and turns

red or yellow depending on maturity. Arabica yields 500 to 1000 kg of clean dry
 15

coffee beans per hectare. This variety is an early bearer; it bears fruits two to

three years from planting.

MATERIALS
These are the necessary inputs used and applied to transform or modify

its original state into its final form.

Arabica Coffee Seed. The Arabica seedlings are

an essential material for coffee plantation. These

may be purchased in Adlaon at 600 Php per

kilogram.

Fertilizers. Fertilizers are applied to the land for

the coffee seedlings to grow faster and healthier.

Fertilizers specifically made for coffee may be

bought at Allegro Beverage Corporation at Php

882 per sack.

 16

Water. Water is another essential material that is needed for the coffee seedlings

to live. Water is supplied by Dalaguete Water District at Php 36,000 per year.

EQUIPMENT AND TOOLS

These are the necessary equipment and tools used in the production

process. They are used by farmers in cultivating and harvesting the crops and

are also used for manufacturing the finished product. The following equipment

and tools should be properly selected to reach the planned quality and also to

have a production that is effective and efficient.

Rake. Rakes are used in the drying method of

coffee processing. It is used to spread the coffee

cherries for drying. Rakes can be purchased at

Cebu Bionic Builder Supply for Php 189 per unit.

Huller. The machine is used in separating the

coffee beans from its outer shell or parchment.

This machine can be purchased at the Allegro

Beverage Corporation for Php 25,500.

 17

Baskets. Baskets are used in

harvesting to store hand-picked coffee

cherries. These may be bought in Cebu

Bionic Builder Supply at Php 87 per

unit.

Coffee roaster. Coffee roaster is a machine that

transforms both the physical and chemical

properties of a green coffee bean into a roasted

one. Coffee roaster may be purchased for Php

56,100 at the Allegro Beverage Corporation.

Coffee bean sieve. It is used to sort the size of

coffee bean for easier extraction. The sieve

may be purchased in Allegro Beverage

Corporation at Php 427 per unit.

 18

Tarpaulin. Tarpaulins are used as a mat during the

drying process where the cherries are placed to be dried

for weeks under the sun. Tarpaulins are bought at Php

153 per unit in Cebu Bionic Builder Supply.

PLANTATION FLOW
One of the vital parts of the technical aspect is the process of things that

should be done in the plantation to ensure the quality of the products. The time

frame is found in the Gantt Chart.

Establishment of
Coffee
Plantation

Lay-outing
and Holing

Transplanting

Care and
Maintenance

Harvesting

Processing
 Packaging
and 19
Delivery

Establishment of the Coffee Plantation

First thing to do in establishing the coffee plantation, is the construction of

the nursery. The procedures in nursery establishment are:

1. Preparation of seed and seed bed.

2. Sowing of seeds

3. Filling and lay-outing of plastic bags

4. Preparation of stem cuttings

5. Pricking of seedlings

6. Water and fertilization

7. Weeding

8. Pest and disease control

After a nursery has been established, the following requirements must be

considered.
 20

Table 1. Suggested Shade Regulation

AGE OF % SHADE % SUNLIGHT
SEEDLING
(in months)
1-2 75 25
3-4 50 50
5-6 25 75

Table 2. Arabica Growth Requirements

NAME OF COFFEE Arabica
ELEVATION (MASL) 900-2,000
TEMPERATURE (◦C) 10-20
SOIL pH 5.5-6.5
SOIL DEPTH 1.5
ORGANIC MATTER Rich in OM
SUNSHINE REQUIREMENT Slight
RELATIVE HUMIDITY (%) 75-90
RAINFALL (mm) 200
MAJOR CHARACTERISTICS Aromatic taste; Self-fertile

Soil Factor

The minimum depth of soil for coffee propagation is 1.5 meters.

The soil must be highly fertile with high moisture holding capacity. It must

be of medium texture with good drainage and erosion. Soil moisture must
 21

be adequate maximum vegetative growth and berry development. The

optimum soil pH must be between 5.5 to 6.5.

Climatic Requirement

The optimum temperature should be 21 degrees Celsius by night

and 26 degrees Celsius by day. Moderate soil temperature is vital for root

growth. Soil moisture must be adequate maximum vegetative growth and

berry development.

Land Preparation

Thorough preparation of the land is necessary before the

establishment of the plantation. The main goal is to free the area from

weeds and one way of doing this is through plowing. The plowing process

not only suppresses weeds but also cultivates the soil and makes it soft. It

is also environmentally-friendly compared to burning the ground, therefore

making it the advisable process in preparing the land.

Land Elevation

Higher elevations produce hard, dense beans that are more

sought-after than beans grown at lower elevations. Hard beans, as they

are sometimes called, are of a higher quality than soft beans, because
 22

they have a higher concentration of sugars, which produce more desired

and nuanced flavors. An elevation greater than 900 m above sea level

(M.A.S.L.) is required for Arabica coffee.

Soil Organic Matter

Soil organic matter (SOM) plays an important role in soil quality and

productivity maintenance, acting as anenergy source, promoting biological

diversity, enhancing terrestrial ecosystems composition.

Rainfall

Rain should be uniformly distributed over seven to nine months of

the year, as is the case, especially at higher elevations. Rainfall

requirements depend on the retention properties of the soil, atmospheric

humidity and cloud cover, as well as cultivation practices. According to the

Department of Agriculture, optimal rainfall is 200 mm for Arabica Coffee.

Sunshine Requirement

The tree requires some but not too much direct sunlight; two hours

a day seems ideal. The lacy leaves of the upper levels of the rainforest

originally shaded the coffee tree. To meet this requirement, the usage of

nets as shade for the coffee trees are necessary for the first three years.
 23

Relative Humidity

In general, growers dry green coffee beans until they have a

moisture content of more than 8 but not less than 12.5 percent, as beans

with this moisture content have the best flavor when roasted. If a storage

facility is too dry or humid, the beans respectively lose or gain moisture,

which impacts their flavor. Therefore, the amount of time a company can

store coffee depends on its geographic location. Those with low relative

humidity levels can only store coffee for short periods. Arabica Coffee’s

relative humidity should be maintained in the 75–90% range.

Shade Regulation

Various studies indicate that arabica coffee has the highest yields

under 35% to 65% shade. In addition, growing coffee under shade also

discourages weed growth, may reduce pathogen infection, protect the

crop from frost, and helps to increase numbers of pollinators which results

in better fruit set. Coffee grown in the shade takes long to ripen and is

often thought to taste better because the long ripening times contribute to

complex flavors.

Lay-outing and Holing

Lay-outing is done by establishing a straight baseline along the boundary.

It is important to take note of the orientation of rows from west to east or from

north to south that will allow sunlight penetration between the rows, then stake

the rows and hills of coffee. For shade-grown coffee using the commercial
 24

polyculture method, the picture next page signifies the recommended planting

distance:

Figure 2. Recommended Planting Distance (3x3 m)

Planting holes should be large and deep enough to put up the ball of soil

intact around the roots of the seedlings. It is best to dig holes (40x40x40cm) to

provide room for the root development one month prior to planting. While digging

holes, separate the topsoil from the subsoil. Refill holes by putting back topsoil

first and then overlaying with the subsoil. Add compost and fertilizers rich in

phosphorus to the soil before refilling the holes.

Transplanting
Transplanting of Arabica Coffee seedling should take place at the onset of

the rainy season. A seedling is said to be ready for transplanting if it already

consists of six small pairs of leaves or when the seedling is six months old. In

transplanting, thefirst step is to cut the plastic bag one inch from the bottom to

take out bent roots. Then, remove the plastic bag and bury the ball of soil.If white

grub is a problem, mix thoroughly the recommended rates of Furadan to the soil

during planting. Make sure that the root collar is exactly at ground level to

prevent rotting and compact the base around the seedling. Basal fertilization is
 25

recommended using acomplete fertilizer. Apply basal fertilizer two to three

tablespoons per seedling or use anorganic fertilizer at 150 to 200 grams.

Care and Maintenance

This stage is the crucial part of plantation because it greatly affects the

coffee production and quality. Care and maintenance involve weeding and

mulching, fertilization, pesticide application, and pruning.

Weeding and Mulching

Weeding is done to reduce the competition of weed and crop for

the moisture and nutrients in the soil. It is important to prevent pests and

diseases. It should be done regularly either manually or mechanically. The

chemical way of weeding is not advisable since it can harm the

environment. Mulching reduces the frequency of weeding, minimize

moisture losses during dry periods. Mulching enhances soil moisture

status through improved infiltration and reduction in evaporation, the

former being more beneficial than the latter according to Webster and

Wilson (1971). The mulched soil has lower average temperatures and a

restricted diurnal temperature range. This effect is of minor importance

under tree crops with heavy shade, but even under cocoa Smith (1954)

found that mulching reduced average soil temperature slightly and the

diurnal range considerably. Mulching maybe done by putting down palm

 26

fronds. In this way, the soil is protected against sun and rain. The rotting

leaves give the soil organic matter.

Fertilization

The right dosage of essential elements (nitrogen, phosphorus,

potassium, calcium, and sulfur) is supplied by fertilization. Micronutrients

like zinc, boron, copper, manganese, and iron are also vital to the growth

of coffee plants. Fertilization is conducted according to the results of the

soil analysis. If soil analysis cannot be conducted, the following fertilization

program is recommended:

a. Non-fruiting trees- 120:120:60 (NPK 2:2:1)

b. Fruit-bearing trees- 120:60:120 (NPK 2:1:2)

There are two methods of fertilization that is Band/Ring method and

Pocket method. Currently, the fertilizer recommended rate (RR) for coffee

is 180 Nitrogen (N) – 90 Phosphorus (P) – 180 Potassium (K). In areas

following multiple cropping system, it is recommended to apply 200-100-

200 per hectare plus the needed micronutrients depending on soil

analysis. The needed amount of nutrients can be supplied by the

formulation provided below, recommended for use by the National Coffee

Development Board (NCBD) in their coffee rehabilitation programs.

Fertilizer Formulation (based on Fertilizer produced by Atlas Fertilizer)

 27

Mix 2 ½ sacks of urea with 13 kilos of micronutrients. Always remember to

mix the urea with the micronutrients first before adding the other fertilizers.
Be sure to mix well before application.

Add 2 sacks of Muriate of Potash, 5 sacks oh Hi-Yield Gro and 3 ½ sacks

of Solophos to the mixture.

In fertilization, first dig four holes around the coffee plant, each with

a depth of five to six inches and with a distance of one meter from the

base of the plant. Put 100 grams of mixed fertilizers in each hole and

cover immediately. If thesoil is dry, water the covered holes with one liter

of water. Burying the fertilizers deep in the soil is an effective method of

ensuring against the loss of important nutrients.

The peak periods of demands for nutrients are at the time of

flowering, fruit set and development and maturation of the crop. Based on

all these factors. For coffee, fertilizer schedule is as follows:

Arabica Nitrogen: Phosphorus:Potash

Young coffee 1st year after 45:30:45
planting
2nd and 3rd year 60:45:60

4th year 80:60:80

Bearing coffee 5 years and 140:90:120
above for less than one
tonne/ha.
Crop for 5 years one tonne/ha. 160:120:160
and above

Pruning

Pruning in coffee is done immediately after harvest and till the

onset of monsoon. Pruning involves centering – that is theremoval of the

 28

vegetative growth up to 15 cm radius from the center and up to the first

node of all primary branches. Desuckering is then done for the removal of

orthotropic branches arising from the main trunk. Handling on other hand

is the removal of small sprouts arising from the axis of the leaves which

otherwise grow towards the inner side and cause shade and become

unproductive wood. Lastly, if growing tips of primary branches appear, it is

then removed by nipping to encourage secondary and tertiaries.

Pests, Diseases and Their Management

The following are the most common and most destructive pests and
diseases of coffee in the Philippines.

A. Pests

There are four kinds of insects that attack the different parts
of the coffee plant. These include the following:
Insects Insects attacking Insects Insects attacking
attacking the the stem or trunk attacking the berries
roots or branches the young
shoots
and
leaves
Name White Root Grubs Mealybugs Black Coffee Berry Borer
Citrus
Aphid
Damages Roots are eaten Presence of white Young Irregular holes in
up with fluffy bodies on shoots with leaves due to
consequent shoots, leaves and aphid thefeeding of adult
wilting of the between berries. calories beetles. Infested
leaves. Plants are stunted curl up and young berries turn
with berries become from the normal
undeveloped. distorted. green to yellow-
Presence of orange and shortly
abundant, sooty afterward, the fruits
molds. fall prematurely.
Name Cricket Pyramid Borer Coffee
 29

Clearing
Moth
Damage Roots are cut-off Leaves turn yellow Irregular
s resulting in the and eventually wilt holes or
wilting of newly- due to the boring of portions of
planted beetles inside the leaves
seedlings. trunks and removed,
branches resulting sometimes
to the death of the stripping
tree. the plants
bare.

B. Pest Management

In the pest management, there are two methods, the mechanical

and chemical. In using the mechanical method, cultural practices are

applied like the collection and destruction of infested berries before and

after the harvest, keeping the plantation free from ripe and overripe berries

for a period of three months, and pruning excess branches of shade trees

to expose coffee trees to sunlight. There should be a strict implementation

of quarantine laws and avoidance of using sacks that have been used for

infested berries unless treated by soaking in hot water or spraying with

appropriate chemicals. Soaking the berries in hot water for about 10 to 15

minutes or dry with hot air until themoisture content is 22 percent or below

is a must and proper aeration in storage will minimize infestation.

Under the chemical method, pests like coffee berry borer must be

fumigated by using phostoxin or methyl bromide. Another way is to spray

insecticides at two or three weeks’ interval using recommended

insecticides for coffee pests. Lastly, avoid using insecticides continuously

in order to prevent insects from developing resistance to chemicals.

 30

C. Diseases and Their Control

DISEASE SYMPTOMS CONTROL

Leaf rust Pale yellow spots on the lower Spray Bordeaux mixture
surface of leaves, later turn to
(0.5%) four time a year pre-
orange-yellow powdery mass, blossom, pre-monsoon, mid
infected plant exhibit
monsoon, and post-monsoon
defoliation. months.
Blackrot Blackening and rotting of the Proper shade regulation,
affected leaves, twigs and centering and handling the
developing berries. affected bushes to prevent
secondary spread, spraying
with 1% Bordeaux mixture.
Brown Small water-soaked lesions on Prune badly affected plants
blight, twig margins of leaves and slowly during dry months, spray 0.5%
blight extend causing drying of Bordeaux mixture.
dieback margins, often bushes start
drying downwards with
theshedding of berries.
Root Affected plants show gradual Uproot the affected plant and
diseases yellowing of leaves, defoliation burn, dig trenches of 60cm
followed by thedeath of above- deep and 30cm width to isolate
ground parts. the affected bushes, keep
fallow for 6 months, apply
organic manures 10-15 kg per
pit.

Harvesting
Coffee trees do not bear fruits exactly at the same time; some may be

late, while some may bear fruits earlier. Thus, harvesting is normally done by

handpicking the berries when they turned red or yellow. Coffee fruits should be
 31

picked as and when they become ripe to get better quality. This kind of

harvesting is called Selective picking wherein only ripe berries are harvested. It is

preferable to pick hard ripe berries (mature, red berry) and soft ripe (mature, red

to dark red, skin no longer firm) berries for best quality of coffee beans. The berry

of normal size is hard when pinched or bitten at about ½ of its breadth. The berry

is said to be mature if there is already a slight yellowing of its upper portion.

Arabica comes for harvesting earlier since they take 8-9 months for fruit

development from flowering.

When harvesting, the berries are picked one by one with three

daysinterval between picking. The first picking consists of selective picking of ripe

berries and is called fly picking. Thereafter, there will be 4-6 main pickings at 10-

15 days intervals and final harvest. Picked berries are placed in a takuyan. A

bamboo basket attached to the waist of the picker.

Processing
After harvesting, the coffee beans should be processed within 12 hours.

Delaying the pulping operations for more than 48 hours causes the deterioration

of the quality of the beans.

The researchers recommend the using the dry or natural processing of

coffee beans. This process is considered good and economical because sun

drying produces beans of good taste and color. Drying is composed of several

steps, first is to place the harvested berries on a mat or a tray and sun-dry.

Spread the harvested berries evenly with the aid of a rake or with bare hands.

Then, turn over the mat of coffee berries three or four times a day. Gather the
 32

berries in a heap before sundown and cover them either with buri mat. Finally,

remove the cover and expose the berries again to sunlight the following day.

These steps are followed for several days until the moisture content is reduced to

about 12 percent. The drying process lasts two weeks for Arabica. After the

whole process of drying the berries are now ready for hulling. Hulling machinery

removes the parchment layer (endocarp) from wet-processed coffee. Hulling dry

processed coffee refers to removing the entire dried husk — the exocarp,

mesocarp, and endocarp — of the dried cherries. This process must be done

carefully because improper adjustment of the hulling machine may result in the

unnecessary breakage of the beans and incomplete removal of the parchment.

Polishing is also done while hulling. Polishing is an optional process where any

silver skin that remains on the beans after hulling is removed by machine.

Polished beans are considered superior to unpolished ones. After polishing, the

beans will be now sorted according to their quality. It is done by size and weight,

and beans are also reviewed for color flaws or other imperfections. Typically, the

bean size is represented on a scale of 10 to 20. The number represents the size

of a round hole's diameter in terms of 1/64's of an inch. A number 10 bean would

be the approximate size of a hole in a diameter of 10/64 of an inch, and a

number 15 bean, 15/64 of an inch. This is done to separate the good or high-

grade beans from the defective ones which appear black, broken, unhulled and

infected or immature. This is to ensure the quality of the beans produced. Last

part of theprocessing is the roasting of the coffee beans using theroasting

machine. Most roasting machines maintain a temperature of about 550 degrees

 33

Fahrenheit. The beans are kept moving throughout the entire process to keep

them from burning.After roasting, the beans are immediately cooled either by air

or water. Roasting is done to transform green coffee into the aromatic brown

beans that the coffee shops buy.

Packaging and Delivery

One way to help preserve freshness is to use coffee packaging for roasted

coffee that protects the coffee from environmental factors.

A good packaging is green-lined bags made of jute or other natural fibers.

The beans should be allowed to cool before it is packaged. The target weight per

bag is 10 kg. Deliveries are graded in terms of percentage and total triage by

weight of a composite sample. Deliveries should be below 16 percent triage by

weight and below 18 percent moisture content.

PRODUCTION CAPACITY
The proposed land of the coffee plantation is 4 hectares or 40,000 sq.

meters. In a hectare, 12,908 trees can be accommodated. This number is

significantly lower as compared to modernized planting method because of the

shade trees. Planting holes should be 40 x 40 x 40 cm and the coffee plants

should be healthy, with dark green, well-formed foliage and a minimum of 6 to 8

leaves. The roots should be well-developed with an undamaged taproot. The

roots must go straight down to the soil and go down very deep.

The table below shows the annual production capacity for the proposed

coffee plantation:
 34

Table 3. Annual Production Capacity

Plan
Gree
Year t no.
Cherr n
plante Tota Years
y (kg) bean
d l
(kg.)
yield
1 2 3 4 5 6 7
Plant 12,90
1 no. 0
Yield
Plant 10,06              
2,840
2 no. 0
Yield                  
Plant 10,06
2,840
3 no. 0
Yield
Plant     10,06          
2,840
4 no. 0
Yield       15392       15392 2309
Plant 10,06
2,840
5 no. 0
Yield 24647 24647 3697
Plant           1290      
no. 0
6
          4011  
Yield 40119 6018
9
Plant 1290
no. 0
7
4011
Yield 40119 6018
9
 35

QUALITY CONTROL
For quality control, the researchers recommend the employment of an

independent grader. The researchers also recommend that the grader is

contacted with during harvesting seasons, and not regularly employed since the

nature of coffee only provides for harvests in specific quarters. The grader will be

provided samples from the firm’s current harvest and from the products to be

delivered. The sampling containers must be clean and dry to maintain freshness

and quality.

The researchers also recommend employing the selective method of

picking – this method of harvesting ensures that the harvesters only pick the ripe

coffee cherries in good conditions, devoid of stale, dried, immature or green

berries and other extraneous matters.

The harvested cherries are inspected manually to check for defects and

pick out beans that are not up to par. To ensure only the best quality, the beans

are then processed traditionally – without making use of a pulping machine. The

process shall begin not more than twenty-four (24) hours from harvest while the

process itself differs in time.

Thereafter, the beans are collected, and then carefully mixed. A weighted sample

will then be selected, laid out on the table and then systematically checked for

defects, color, insect holes, maturity, and damage, among others. The defects

are tallied and checked against the contracted allowance – which is the

allowance allotted for defects as per quality control measures (currently set at

2%). The overall color and texture of the sample are noted.
 36

Prior to delivery, the beans are at an acceptable moisture level according to the

contract/circumstances of the shipment in order to prevent molds.

The table shown in the next page will guide in the evaluation process.

Table 4. Guide in the Evaluation Process

Step Ranking on Rating Range

Fragrance and Preference Very poor to
1 Aroma 1 to 10 outstanding
Acidity Intensity Very flat to very
2 1 to 10
bright
Flavor Preference Very poor to very
3 1 to 10
bright
Body Intensity Very thin to very
4 1 to 10
heavy
Aftertaste Preference Very poor to
5 1 to 10
outstanding
Points and Taster’s overall Very poor to
6 -5 to +5
Balance preference outstanding

After the evaluation, fifty points are added to the resulting score to give a score

over a hundred. The scoring system is then interpreted as follows:

 Class 1 Specialty Grade should receive above ninety points

 Class 2 Premium Grade should receive eighty points and

above but no more than eighty-nine points

 Class 3 Exchange Grade should receive seventy points and

above but no more than seventy-nine points

 37

 Class 4 Below Standard Grade should receive sixty points

and above but no more than sixty-nine points

 Class 5 Off Grade should receive fifty points and above but

no more than fifty-nine points

The following beans are considered substandard and will be put into

waste management.

 Black Beans – This particular bean is externally black ever

since harvest.

 Moldy Beans – A white mold is setting on the beans, caused

by improper drying or storing while the moisture content is

still very high.

 Brown Beans – The bean’s surface is dark brown or

chestnut in color or any other discoloration caused by

overfermentation

 Husk Fermented – The fragment of the bean’s husk pericarp

with or without silver skin and parchment.

 Infested Bean – Coffee bean with one or more holes cause

by insects, due to lack of care and improper pest

management
 38

 Immature Beans – Unripe coffee beans of greenish or

grayish color often with awrinkled surface which may be

caused by premature harvesting or improper harvesting (e.g.

outward stripping of berries).

 Broken Beans – Refers to a fragment of a coffee bean, at a

size of or less than 3/4 of the whole bean.

 Foreign Body – Foreign extraneous materials such as sticks,

stones, other crops, hard earth, and wood.

The International Coffee Council (ICC) states that the minimum standards for

exportable coffee are the following:

 Arabica coffee must not have an excess of 86 defects per

300-gram sample

 Moisture content must be above 8 percent but not more than

12.5 percent.

All coffee supplied for export must be labeled to indicate that it is coffee or a by-

product of coffee. For delivery standards, the following are required:

 The coffee is sound in the cup;

 The coffee is of good roasting quality;

 The coffee bean sampled must have a size larger than fifty percent of the

coffee population;
 39

 The coffee is greenish and free of foreign odors.

 The coffee contains no more than fifteen full imperfections.

The following shall constitute one full imperfection

 one (1) full black;

 one (1) full sour;

 one (1) pod or cherry;

 five (5) shells;

 five (5) broken or cut beans;

 two (2) to five (5) partly black or partly sour beans, depending upon the

extent to which each bean is discolored or spoiled;

 five (5) floaters;

 three (3) sticks smaller than one-half (1/2) inch;

 one (1) stick ranging in size from one-half (1/2) inch to one (1) inch;

 three (3) stones passing through a screen size below twelve (12);

 one (1) stone passing through a screen size no smaller than twelve (12);

 two (2) to three (3) hulls or husks, depending upon size;

 and two (2) to three (3) parchments, depending upon size.

 40

The following shall constitute two full imperfections.

 one (1) stick ranging in size from one (1) inch to two (2)

inches, and

 one (1) stone passing through a screen size no smaller than

sixteen (16).

The following shall constitute three full imperfections.

 one (1) stick larger than two (2) inches;

 and one (1) stone passing through a screen size over twenty

(20).

Any additional non-coffee item shall be one full imperfection.

Coffee is unsellable in the following circumstances:

 it has more than 450 defects per 500 grams

 it is unsound as determined by graders

 it has more than 5 fully moldy beans or 10 partially moldy beans

per 500 grams

Unsellable coffee is put into waste management.

 41

SITE SPECIFICATION
The selection of the plant location is thoroughly planned and is

approximately selected because this will determine most of the expenses of the

project. This also affects the condition of the crop as to the quality and

production.

Farm Location
The proposed location for the plantation is a 4-hectare farmland located in

the mountainous barangay of Jolomaynon, Dalaguete City. This location is

chosen because of a variety of reasons. The primary reasons are because of its

price of Php 6,000,000.00 which is around Php 150.00 per square meter; the size

of 4-hectares that can house a lot of coffee trees; the climate and altitude is

perfect for farming and the location is near the farmers’ residences. This is

inclusive of the security fence.

Figure 3. View from the main road

The proposed location is a 2-hour drive to Cebu City proper for distribution

to coffee shops, grocery stores, and supermarkets. It is also less than an hour’s

drive to the nearest port in Argao for exports. The nearest settlement of
 42

Dalaguete proper is just a 15-minute drive giving farmers an incentive to work

there.

The location is a 15-minute drive to the main road, which will help in the

distribution of coffee. The area is also completely fenced with barbed wire which

enhances the security of the coffee plantation.

Figure 4. View of site fence

The lot’s location also boasts a lot of utilities that can be used to the

project’s advantage. Deep wells and connection to electricity help the plantation

prosper.

Farm Buildings
There are no existing farmhouses in the property so building a farmhouse

is a necessity. The farmhouse will serve as a shed for temporary storage and as

working and resting areas during planting and harvest seasons. Construction of a

new farmhouse has advantages such as the ability to strategically place where to

put the farmhouse itself. Ideally, it needs to be near the field for efficiency in

harvest and then storage. It must also be near the main roads so that the mini
 43

delivery vans would not be required to enter the farmland itself making loading

times faster and prevents soil erosion from the van’s tracks.

Nursery
Beside the farmhouse will be housing for a nursery as coffee leaves are

easily burnt underneath the sun. A nursery is established mainly to raise and

propagate healthy seedlings. The nursery requires shade, water, extra care and

protection from the winds, pests, and rodents. This will ensure a higher grade of

quality for coffee. After a year of transplanting all the seedlings in the nursery

which would approximately on the third year, the nursery will then be converted

into a shed for propagation of mushrooms – which is used to earn additional

income and to manage the waste from the coffee pulps.

UTILITIES

Utilities are necessities required to make a business grow. These are

factors that will make an impact on the long-term costing of the business venture.

Water

Water is an absolute necessity for any farms. The site already has deep

wells making it good for reservoirs of water in case of the dry season. It is also

situated far from the city making the waters clean and fit for the plants to grow.

Coordination with the Metro Cebu Water District is also vital for growth.
 44

Electricity

Electricity is used all around the year for lights and other necessities for

human use. This is important for administrative works as well as other

requirements to be tailored to standard quality specifications for supply. Some

contract work requires coffee beans to be refrigerated to better preserve quality.

The source of electricity will be provided by the Visayan Electric Company.

Communications

Communication is essential for running a business operation. This is to

coordinate with customers and prospective buyers. The better choice for

communications would be to select the Philippine Long Distant

Telecommunications Corporation as the provider for landline operations and

internet connections. For cellular networks, Globe would be a better choice

because other networks have no signal in that area.

WASTE MANAGEMENT
Coffee only has one sellable product which isthe coffee beans. For every

1000 kilograms of fresh coffee berries, there is about 400 kg of wet pulp. The

coffee pulp contains caffeine, tannins, polyphenols and organic solid residues. It

shows toxic nature and thus not been utilized beneficially. This effluent is being

directly discharged to the nearby water bodies causing severe ailments like

giddiness, skin irritation, stomach pain, nausea, and breathing problem. Severe
 45

of this waste courses and a serious environmental problem among the residents

of thenearby area. (Padmapriya, Tharian, &Thirunalasundari, 2013).

For this reason, the business cannot dump its waste directly into rivers, or

even underground, as this may breed pests in the future. The following steps

may be taken to manage coffee waste.

Disposal

The easiest method would be to throw the wet pulps and other

refuse in lagoons, if available. If a nearby aerobic lake system is present,

anaerobic digestion can be applied for the treatment of liquid and solid

wastes from the coffee processing units but this requires an

aerobicreactor. A cheaper alternative would be to use the adsorption-

based technique (Devi et al. 2002) which requires only low-cost

carbonaceous materials. Activated carbon is used to reduce color and

pollutants in wastewater but require added costs in purchasing activated

carbon.

Organic Compost

As manure, coffee can be left in piles for 3 to 12 months as coffee

contains a source of nutrients: 0.5% of composted pulp is nitrogen, 0.15%

is phosphorus, and 0.5% is potassium. (Padmapriya et. al, 2013). The

pulp can be turned into fertile black soil. The compost also has increased

effectivity when mixed with cattle manure.

Mushroom Production
 46

Coffee pulp can be used as soil to make mushrooms. Fermenting

for two days, the pulp is mixed with hot water, drained, dried, and then

mixed with mushroom spores. Then, they are put in plastic bags. After 3 –

4 weeks, the mushrooms will grow out of the holes in the bags and are

collected. One bag allows 2 – 3 mushrooms harvested. This can be eaten

or dried and sold in the market. Every harvest season has a large amount

of coffee pulp which makes mushroom growing a significant income for

farmers.

Animal Feeds

Coffee is rich in nutrients and can be used as animal feeds when

dried and treated as soon as possible. To prevent thedevelopment of

fungi, the pulp can be treated with Ca(OH)2 and dried under pressure.

Alternatively, the pulp can be mixed with sugar cane molasses, or urea

and other inorganic substances and put in silos. The silage can be used

after 3 weeks and can be stored up to 18 months. However, using

thecoffee pulp as animal feeds is of limited value, since the cost of drying

the pulp sometimes exceeds the gain. Besides, the effects of caffeine,

tannin and the high level of potassium on the animal’s health are

unknown.

Among the four steps of coffee waste management the entity used the

mushroom production as its way of disposal because it can be used to derive

additional income and at the same time least costly.

 47

CHAPTER III

MARKETING ASPECT

Marketing is the process made to create and satisfy consumer needs and

wants through products and services. This aspect determines the target market

and its favorability to the market’s response to the goods or services offered. The

researchers hope to understand consumer behavior to better suit the offered

services and products. By doing so, customer value will improve along with the

profits.

There is a need for coffee in the Philippines as it stays as a net importer of

coffee. In this chapter, the researchers prepared questions for the target markets,

which will be of use for present demand and projected demand.

 48

TARGET MARKET
The researchers decided to have the different coffee shops located in

Cebu City as their primary markets. The coffee shops targeted would be those

that have made their identities as local brands. Primary markets are the main

customer whom the products are to be sold. They are the market who holds the

largest number of potential buyers.

Secondary markets are the indirect customers of the product. They

acquire products sometimes from the primary market or some through

middlemen. This includes the future primary buyers who purchase at a higher

rate in a small market segment and they influence the primary market. The

researchers identified the manufacturers, exporters and coffee drinkers as their

secondary markets of the product.

The conducted survey is tailored only for the primary markets which are

the various coffee franchises in Cebu City. The questions in the survey properly

reflect what the primary market demands

The researchers’ primary target markets are the coffee shops established

in Cebu City. It is the best market for the product because as the demand for

coffee increases, the number of coffee shops being established also increases

and this kind of shops as business is obviously booming. It became a hit

especially in Cebu for students and businessmen, who nowadays are very fond

of drinking coffee in picture perfect places which are the coffee shops. It is the

best choice for the primary markets because they have a large number of coffee

drinkers especially the well-known ones like Bo’s Coffee.

 49

PAST POPULATION
No data is available for the past population of coffee franchises, but the

following table is the most recent data using 5 years taken from Entrepreneur

Philippines. [ CITATION GoK10 \l 1033 ] This data represents total coffee shops in the

Philippines including its chain outlets from 2009 up to 2013. As of 2017, there are

47 coffee franchises and connoisseurs, which include its branches of 155 coffee

shops recorded within the government of Cebu.

Table 5. Coffee Shop Population in the Philippines (2009-2013)

Year Population Increase (Decrease)

2009 425 -
2010 447 5%
2011 440 (1.5%)
2012 449 2%
2013 462 3%
Average 2%
There is a positive 2% annual growth rate for coffee shops made in the

Philippines and the rate applied to the projected population of the franchises.

DEMAND
Demand is a consumer’s desire and willingness to pay a price for a

specific good or service. Questionnaires and surveys obtained through manual

means will determine demand level. Statistics, news articles, and past data

acquired from the internet and literary sources will determine demand level.

Statistics show that total green bean production has been declining significantly

and as a result, the country imports around 20,000 to 30,000 metric tons of

coffee beans to meet supply deficits. [CITATION Cav \l 1033 ]

 50

The annual domestic consumption of coffee at 53,000 metric tons of green

beans and is increasing at the rate of three percent (3%) per year. Imports

constitute about half of the market demand due to lack of production. The

continuing production decline annually has already led the industry to depend on

importation losing around 700 million pesos a year.

World consumption of coffee in the year 2000 reached 6.3 million metric

tons equivalent to around 750 billion cups and this consumption continues to

increase at one to two percent growth per annum. The green coffee beans

market is currently at 1.4 billion pesos.

Present Demand

Present demand is in the questionnaires and statistics obtained while

projected demand is the demand the project can expect to provide. Projected

demand is an extremely useful piece of information because this will help in the

logistics of the business and management will know what to expect and know the

standard for that current year’s yield and the following year’s growth.

This present demand will be the basis for the projected demand. The

primary reason why surveys and questionnaires are used is to be as a foundation

for future demand. Information from the following tables will support and enhance

the claims made by the researcher on current demands. The following pages will

show our tables that will demonstrate the results of our present demand. There

are 19 respondents spread through Cebu with details in the research design.

The following tables show the market’s knowledge and willingness to

purchase the product.

 51

The varieties of coffee that are frequently purchased by respondents

The researchers are interested in identifying if the respondents regularly

purchase the Arabica variety of coffee in order to establish if the product will be

marketable to the primary market.

Table 6. Coffee Varieties Frequently Purchased

n= 19

Response Frequency Percentage Rank

Arabica 17 89% 1
Robusta 9 47% 2
Excelsa 1 5% 3
Liberica 1 5% 3
Krema 1 5% 3
Italian 1 5% 3

The survey shows that 89% of coffee shops purchase Arabica coffee on a

regular basis. This shows that the market already exists for the coffee variety

Arabica. Other percentages show that 47% of coffee shops purchase Robusta as

the second most in-demand coffee variety. This can be useful in case the project

would want to diversify the products. The other varieties of Excelsa and Liberica

show that 5%of coffee shops purchase the products respectively. Other coffee

shops are specialty shops using other varieties.

However, an interview with the manager of a large coffee chain store

revealed that mixing Arabica and Robusta is a method of increasing quality as

 52

this will change the coffee’s taste and its rarity. This mixture would be beneficial

in increasing price and indetermining whether to diversify trees.

The forms of coffee that are frequently purchased by respondents

The researchers are interested in identifying what form of coffee the

respondents usually prefer in order to plan for future production. This, in

turn,would aid the project because it will help reduce costs of processing by way

of minimizing the cost of products that are not in demand in the market or

increase revenues by making more of what the market wants.

Table 7. Coffee Forms Frequently Purchased

n= 19

Response Frequency Percentage Rank

Roasted Coffee Beans 14 74% 1
Ground Roasted Beans 6 32% 2
Unroasted Green Coffee Beans 1 5% 3
Raw Coffee Cherries 0 -

The survey shows that 74% of the respondents prefer to purchase roasted

coffee beans as the favored form. This means that the business will most

probably be producing more of this product as opposed to the other forms.

Roasting equipment, therefore, will have to be purchased in order to produce the

product. The next form that is in-demand would be ground roasted beans with a

percentage of 32%. The researchers are speculating whether to buy a grinder or

not as this is not a significant percentage of the total population. Ground coffee

also decreases the shelf life of coffee. Other forms such as unroasted beans or

raw coffee cherries have very little to no market.

 53

Current packages preferred by the market.

The researchers are interested in identifying the forms of supply

purchased by the market in order to know what forms of supply the researchers

will adopt. This is useful to know because this will determine the current demand

and the packaging required to meet the demand.

Table 8. Packages Preferred by the Respondents

n=19

Response Respondents Percentage

By the kilogram 15 79%
By the packet 2 11%
By the 50 kg sack 1 5%
Abstain 1 5%
Total 19 100%

The form purchased by the market mostly consists of packages in

kilograms with around 79% of the market preference. This shows that a per

kilogram basis is appropriate for sale in the market or the market does not care

what the packaging is so long as the product comes. The market is already

comfortable with what they are used to and the business need not change the

mode of delivery.

The next form most used is by the packet with around 11% of the

respondents. Only 5% use a sack as a package preferred. This means that the

business requires packaging by the kilogram. Good packaging is a requirement

 54

for any business to succeed so it is essential to think of good branding and better

packing.

Demand for coffee in general

Out of 19 respondents, 14 respondents provided a quantity per month.

This is useful to know since this helps in determining current demand.

Table 9. Respondent’s Monthly Demand for Regular Coffee

n= 14

Response (in  Respondent

Total (in kg)
kg) s
500 1 500
400 1 400
250 1 250
47 1 47
40 1 40
30 1 30
20 1 20
15 1 15
10 1 10
5 1 5
4 1 4
3 1 3
1 2 2
Total 14 1326
Average Monthly Demand 94.71 kgs.
Average Annual Demand 1,140 kgs.
 55

A total of 1,326 kilograms are required to supply the various coffee shops

in the metropolitan area giving an average of 95 kilograms per franchise. This

shows that a large market exists here in Cebu.

Market’s knowledge on the variety of Arabica coffee

The researchers are interested in identifying how familiar coffee is to

understand the market better and to make better judgments on how to proceed in

the production and marketing of the product.

Table 10. Knowledge of the Arabica variety

n=19

Response Respondents Percentage

Knows the Arabica Variety of coffee 13 68%
Does not know the Arabica variety of coffee 5 26%
Abstain 1 6%
Total 19 100%

Sixty-eight percent of the market answered yes as to knowledge on the

Arabica variety, with 26% of the market not being familiar with the variety of

Arabica. This means that more marketing on Arabica here in the Philippines is

required to make the brand more familiar because it seems that they only know

that they are purchasing Arabica but do not really know its difference from other

coffee variety.

Market’s knowledge of the shade-grown model of growing coffee

The researchers are interested in identifying whether or not the market is

familiar with how their coffee is grown. This is an important thing to understand
 56

as the shade-grown method of growing coffee uses trees as natural shade as

opposed to the sun grown method of growing coffee, which cuts all trees in an

area and grows coffee. Shade grown coffee is environmentally responsible and

this will be better for the future. This will be useful to know to help in the future on

whether to advertise the shade-grown method more or less in the future.

Table 11. Knowledge of the shade-grown model of growing coffee

n=19

Response Respondents Percentage

Knows the shade-grown model of growing 11 58%
coffee
Does not know the shade-grown model 6 32%
Abstain 2 10%
Total 19 100%

Only 58% of the market knows that the shade-grown model of growing

coffee exists while 32% of the market does not know about the shade-grown

method of growing coffee. This means that more marketing on shade-grown

Arabica coffee here in the Philippines is required to make the brand more

familiar.

Market’s willingness to purchase shade-grown Arabica coffee

 57

The researchers are interested in knowing if the market is willing to buy

Arabica coffee from the project. This is important to understand because, without

the market’s willingness to purchase the product, the implementation of the

project will fail.

Table 12. Market willingness to purchase

n=19

Response Respondents Percentage

Willing to Purchase 16 85%
Not Willing to Purchase 2 11%
Abstain 1 5%
Total 19 100%
Eighty-five percent of the market is already willing to purchase local coffee

while only 11% will not purchase the product. This only shows that most probably

there is a market in this project.

Reasonability of Price

The researchers are interested in knowing the reasonability of price to

meet the price equilibrium where profits are at maximum and the cost is at a

minimum. The prices estimated for the product are are as follows: ₱170.00 for

unroasted beans, ₱400.00 for roasted beans, and ₱600.00 for ground beans.

The following tables show the results of the survey.

Table 13.Php170 for unroasted beans as reasonable

n=1

Response Respondents Percentage

Reasonable 1 100%
Not Reasonable 0 -
Total 1 100%
 58

For all who answered unroasted beans, 1 out of 1 respondent answered

with 63% who decided that ₱170.00 for unroasted beans is a reasonable price.

This is a favorable conclusion to sell unroasted green coffee beans if possible.

Table 14.Php400 for roasted beans as reasonable

n=14

Response Respondents Percentage

Reasonable 13 93%
Not Reasonable 0 5%
Abstain 1 7%
Total 14 100%

For the 14 respondents who used roasted beans, 13 out of 14

respondents answered favorably, which means they agree that ₱400.00 for

roasted beans is a reasonable price. This is a favorable conclusion to sell

roasted coffee beans if possible.

Table 15.Php600 for ground beans as reasonable

n=6

Response Respondents Percentage

Reasonable 2 33%
Not Reasonable 3 50%
Abstain 1 17%
Total 6 100%

For the 6 respondents who used ground beans, only 2 out of 6

respondents answered favorably with only 33% who decided that ₱600.00 for

ground coffee beans is a reasonable price. This is not a favorable conclusion and

thus the project should not venture into ground beans.

 59

The only choices are to sell the unroasted green coffee beans or to sell

the roasted beans to the coffee shops. The better alternative would be to sell

more roasted beans than unroasted beans as these give a better margin than

just selling it outright after drying.

These prices will be the goal of the company as introductory prices. The

researchers included the prices for green beans, roasted, and ground beans

because sometimes it may be more beneficial to sell

green beans or to grind beans if ever the company decides to make

improvements.

Demand for shade-grown Arabica coffee

The researchers are interested in finding out demand for our current

product to determine the current demand, which are a base for future demand.

This will also be useful in determining who to sell the products in the future. Out

of 19 respondents, seven abstained due to confidentiality while the rest

answered.

Table 16. Demand for shade-grown Arabica coffee

n=12

Response
Respondents Total (in kg)
(in kg)
400 1 400
375 1 375
 60

75 1 75
35 1 35
30 1 30
20 1 20
12.5 1 12.5
10 1 10
5 1 5
3 1 3
1 2 2
Total 12 967.5
Average Monthly Demand 80.625
Average Annual Demand 967.5

A total of 967.5 kg can be expected to be bought which already is near the

business’ production capacity. This is good news as high demand is useful for

planning future production, expansion, and improvement. The goal on how to

meet this demand is to meet the larger franchises here in Cebu and supply

coffee.

Total Demand

The next table shows the total coffee consumed in the Philippines. By

2017, there will be around 192,343 kg consumed in the Philippines. [ CITATION

Phi16 \l 1033 ]

Table 17. Total coffee consumed in the Philippines

Year Consumed Increase (Decrease)

2011 129,000
2012 130,500 1%
2013 139,500 7%
2014 153,000 10%
2015 168,000 10%
Average 7%
 61

Currently, Nestle holds a 43% value share of coffee here in the Philippines

in valuing the market share for coffee.

PROJECTED POPULATION OF COFFEE FRANCHISES

The projected population will be useful in projecting the business’ annual

demand for coffee shops. The projected population would be as follows:

Table 18. Projected Coffee Franchise Population

Year Population
2017 47
2018 48
2019 49
2020 50
2021 51
2022 52
2023 53
2024 54
2025 55
2026 56

PROJECTED ANNUAL DEMAND

The projected annual demand is the population multiplied by the answers

from the respondents multiplied by the annual demand of the respondents.

Table 19. Projected Annual Demand

Year Population Respondents Respondents Annual Projected

Interested in Interested in Demand per Annual
Buying Buying at Respondent Demand (in
₱400.00 (in kg) kg)
Table 18
Table 12 Table 14 Table 16
2017 47 85% 93% 967.5 35,946
2018 48 85% 93% 967.5 36,665
2019 49 85% 93% 967.5 37,398
2020 50 85% 93% 967.5 38,146
 62

2021 51 85% 93% 967.5 38,909

2022 52 85% 93% 967.5 39,687
2023 53 85% 93% 967.5 40,481
2024 54 85% 93% 967.5 41,291
2025 55 85% 93% 967.5 42,116
2026 56 85% 93% 967.5 42,959

SUPPLY
Supply is the total quantity of products available for purchase at a given

price to consumers. Supply must not be too high nor too low. Too high and this

will cause inventory overage and coffee being a commodity must be delivered to

the customers as soon as possible to customers in order to keep its freshness

and good quality. On the other hand, supply must also be not too low because

low level of supply might cause or induce inflation.

The current suppliers of coffee in the Cebuano market

The researchers are interested in identifying for who or what supplies the

coffee in coffee shops in Cebu. Identifying the competitors will help the

researchers in determining a viable pricing option and the project’s market share.

It will also help the business recognize the standards employed by the

competitors and top the competitors’ quality.

Table 20. Market Suppliers in Cebu

n=19

Response Frequency Percentage Rank

Imported Outside the Philippines 11 58% 1
Within the Philippines 9 47% 2
Farm in Cebu 1 5% 3
Own Farm 0 -
Groceries 0 -
 63

The survey shows that 58% of coffee shops here in Cebu import coffee.

This is the competition the researchers have to beat as international suppliers

are always a threat to local supplies. A majority of the coffee imports come from

Vietnam.

The next suppliers are those from within the Philippines, and theymake up

47% of the market. This means that coffee, at least for coffee shops, is local. A

local competition is good for the economy as this makes prices competitive and

fair.

Other choices such as farms in Cebu like the Tuburan farm make up 5%

of the market. Competition from local sources here in Cebu is minimal. No coffee

shops have their own farm or buy from supermarkets, which eliminate a large

competition.

Supply in the Philippines

The following table shows the total local production of coffee in the

Philippines. [ CITATION Phi16 \l 1033 ]

By 2017, there will be around 65,250 kg produced locally in the

Philippines.

Table 21. Philippine Local Production

Year Produced Increase (Decrease)

2011 88,500 -
2012 88,900 0%
2013 78,600 -12%
 64

2014 75,500 -4%

2015 72,300 -4%
Average -5%

The table below shows the projected local production for the 10 years

following the most recent data available.

Table 22. Projected Local Production of Coffee

Year Local
Production
2015 72,300
2016 68,685
2017 65,250
2018 61,988
2019 58,889
2020 55,944
2021 53,147
2022 50,490
2023 47,965
2024 45,567
2025 43,289

The next table shows the total imports of coffee in the Philippines. By

2017, there should be around 140,198 kg imported in the Philippines based on

the trend.

Philippine International Imports

Table 23. Philippine International Imports

Year Imports Increase (Decrease)

2011 51,600 -
2012 104,570 18%*
2013 90,890 -13%
2014 70,680 -22%
2015 132,150 29%
 65

Average 3%

There exists an outlier of 103%, removed to avoid skewing too far.

To compensate for one year, the growth rate average of 18%, which

comes from the last ten years, is added. The following table shows the

projected imports for the 10 years following the most recent accurate data.

Table 24. Projected Philippine International Imports of Coffee

Year International
Imports
2015 132,150
2016 136,115
2017 140,198
2018 173,846
2019 179,061
2020 184,433
2021 189,966
2022 195,665
2023 201,535
2024 207,581
2025 213,809
 66

PROJECTED SUPPLY
The following table shows the projected supply using the projected

average percentages in the Philippines.

Table 25. Projected Supply of Coffee in the Philippines

Local International Projected

Year Production Imports (in Supply of
(in kg) kg) Coffee

201
61,988 173,846 235,834
8
201
58,889 179,061 237,950
9
202
55,944 184,433 240,377
0
202
53,147 189,966 243,113
1
202
50,490 195,665 246,155
2
202
47,965 201,535 249,500
3
202
45,567 207,581 253,148
4
202
43,289 213,809 257,097
5

To account for the coffee supply of coffee shops in Cebu, the number of

coffee shops in Cebu is divided by the total number of coffee shops in the

Philippines multiplied by the projected supply of coffee for coffee shops in the

Philippines.
 67

Table 26. Projected Supply of coffee for Coffee Shops in Cebu

Year Coffee Coffee Percentage Projected Projected

Shops Shops in of Coffee Supply of Supply of
in the Shops in Coffee for Coffee for
Cebu Philippines Cebu Coffee Coffee Shops
Shops in Cebu

2018 155 443 35% 23,583 8,254

2019 158 451 35% 23,795 8,328
2020 161 460 35% 24,038 8,413
2021 164 469 35% 24,311 8,509
2022 168 480 35% 24,615 8,615
2023 171 489 35% 24,950 8,733
2024 175 500 35% 25,315 8,860
2025 178 509 35% 25,710 8,998

PROJECTED MARKET SHARE

The coffee industry here in the Philippines is huge and this table shows

what strategies the company must use to withstand the competition in the

market. There is a production lag and normal operations can start in 2021.

Aggressive marketing should be able to take the market shares of other coffee

suppliers. New research suggests that there is no demand-supply gap as all of

the coffee shops interviewed report that there is no shortage of roasted coffee

beans. The researchers decided not to base the projected market share on the

demand-supply gap but on a percentage of projected demand. The production

capacity will completely sell-out as the competitors’ prices are higher and has

higher lead times. The company must strive to take 4% and 6% of the market

share on the first two years of harvest, and 15% of the market share the following

years to come.
 68

Table 27. Projected Market Share

Year Projected Production Projected Market

Demand Capacity (in Share
kg)

Table 19

2018 36,665 0 - -
2019 37,398 0 - -
2020 38,146 0 - -
2021 38,909 1,570 1,570 4%
2022 39,687 2,408 2,408 6%
2023 40,481 6,261 6,261 15%
2024 41,291 6,261 6,261 15%
2025 42,116 6,261 6,261 15%
2026 42,959 6,261 6,261 15%

SALES FORCE
The researchers recommend the use of direct selling sales force. This is

when the selling partner would go around the market population promoting and

selling the product. Choosing this will cut costs and partners will have invested

interest in the business.

PRICING STRATEGIES
Coffee is an old product, which means that there are already a lot of

existing markets and existing consumers. The best way to set prices for the
 69

product would be to analyze the competition and to outprice and outsmart them.

Since the Philippines is a net importer, demand is on our size. The biggest

competition would be Nescafe who dominates the world market for coffee supply.

Coffee already has many firms that exist and the products are identical to each

other. The only variations between products are taste, quality, and roasting

methods. Some firms are already dominating the market but are still not large

enough to band together with other companies to be an oligopoly. Coffee is a

price taker, which means that the market will look at the lowest price possible.

There are almost no entry and exit barriers, which means practically anyone, can

start up a coffee business. The buyers of the market are well aware of how

coffee is grown and roasted, with experience of purchasing roasted coffee beans.

For local competition, the usual prices for roasted beans range around

₱400.00 to ₱600.00 from various local suppliers such as Tuburan Coffee,

KapengBarako, Café Amadeo, Kape Isla and other local makers. The biggest

supplier for local competition comes from the SOCCSKSARGEN region with

37,000 metric tons supplied to the entire Philippines [ CITATION Bur12 \l 1033 ]. For

international competition, the biggest market for coffee bean products would be

from Indonesia with 73,000 m. tons of imports every year and Vietnam, with

7,000 metric tons of import annually [ CITATION Phi16 \l 1033 ]. The next competitor

that is not roasted coffee beans would be from Nescafe with their instant coffees.

Nescafe’s success is because of its strong marketing mix, with recognizable

branding and a strong promotion strategy and non-price competitions with

supermarkets and grocery stores. [ CITATION Bha16 \l 1033 ] Nescafe’s branding is

 70

strong giving it high value and making quality as a premium, with its recognizable

red cup and striking logo. There are also numerous promotion strategies like

running on television and radio making it a household premium brand. Nescafe

also has a non-price competition ensuring uniform price for all its products and

giving discounts to its distributors.

The following prices are what the researchers expect to sell the coffee for

and what it expects the competitors to sell. The competitive prices are at a rate of

6% based on CAGR.[ CITATION Eur17 \l 1033 ].

The proponents recommend the selling prices for the projected selling

prices as shown in the table below as computed based on a competitive pricing

strategy.

Table 28. Projected Selling Price

Year Projected Projected

Competitive Price Selling Price

2018 350.00 – 1,000.00 -

2019 371.00 – 1,060.00 -
2020 393.26 – 1,123.60 -
2021 416.86 – 1,191.29 400.00
2022 441.87 – 1,262.74 450.00
2023 468.38 – 1,338.50 500.00
2024 496.48 – 1,418.81 510.00
2025 526.27 – 1,503.94 520.20
 71

DISCOUNTS
For a new competitor in the market, the researchers recommend the grant

of various discounts to encourage purchases and repeat purchases. The

discounts depend on the following data.

Preference on the terms of sale

The researchers are interested in understanding what the terms of sale

the market will prefer. This is important to know since this will aid in the planning

of funds which include when to expect payments from customers and when to

write-off any doubtful accounts. This knowledge will prepare for any unforeseen

disbursements and think of strategies on how to incentivize prompt payments.

Table 29. Preferred Terms of Sale

n=19
Response Respondents Percentage
Cash paid on delivery 8 42%
Cash paid in advance 3 15%
Credit for 1 week 3 15%
Credit for 30 days 3 15%
Credit for 15 days 1 5%
Abstain 1 5%
Total 19 100%

The respondents answered diversely with 42% of the respondents

preferring to pay cash upon delivery of the coffee. This is a favorable thing for the

business, as it ensures no doubtful accounts and payment is prompt with no long

terms of nonpayment. Coffee is also a perishable item, which means that storage

is not viable for a long time, and delivered as fast as possible. Fifteen percent of

the respondents also answered cash paid in advance, even before delivery. This

is the most advantageous answer but with only 15% of the respondents, it is
 72

better to expect cash on delivery. This will probably be increased when trust and

good relations is built which is why getting to know the owners of coffee shops is

of extreme importance. The other credit terms range from 1 week to 1 month,

with a 15% share in the answers. This is not bad considering a month is still short

term.

The firm may grant a 10% trade discount for purchases from the first year

of harvest from the plantation. The researchers recommend the grant as some

sort of “Bueno Mano”. It is indiscriminate regardless of the number of kilograms

purchased.

The researchers also recommend a discount of 5% for repeat customers.

Repeat customers are customers who have purchased any number of kilograms

for two consecutive years. It is to promote loyalty to the newly introduced product

and is a marketing strategy against existing suppliers.

The company should implement a 5% discount for cash purchases above

10 kilograms. It is to serve as an incentive for customers to pay in cash. The firm

will pay obligations and operating expenses and may use cash received from

purchases.

CHANNEL OF DISTRIBUTION
The channel of distribution is the process how the primary producers will

distribute its finished product to its different types of customers. The channel of

distribution is either by direct selling or by indirect selling. “Direct selling” is where

the goods will be directly distributed to its customer while the indirect one is when
 73

the product will first go through to some intermediaries like wholesalers and

retailers.

The delivery service will deliver the proposed product to the intended

target market. A delivery van for the products will deliver to the different coffee

shops located in Cebu City. The diagram below shows the flow of the products

from the producer to its customer.

Manufacturing Plant Delivery Van Coffee Shops

Figure 5. Channel of Distribution

BRANDING AND PACKAGING

Branding and packaging is an important part of the marketing strategy

because this will show how a product can be easily distinguished from all the

others in the market. It is through branding that a product rises and becomes

known by its competitors. It is imperative to have a strong brand to market

efficiently. The company brand is “Primera Presko” which means that the product

is guaranteed to be fresh and prime. The following figures show what the project

should expect to implement.

For the logo, two P’s mirror each other giving equal focus to quality and

freshness with coffee leaves in the background. The colors red, green, and black

symbolize the three stages of coffee, red as cherries, green as unroasted beans,

and black as roasted beans. The P is also not the traditional one with the curved
 74

and circular head, but straight, with sharp edges to symbolize and emphasize the

advantage that the product has over the other competitors’ brands.

Figure 6.PrimeraPresko
Logo

On the other hand, the packaging is a marketing technique for containing,

protecting, identifying, and facilitating the sale and distribution of agricultural,

industrial, and consumer products. Packaging, just like branding, not only

distinguishes the product among its competitors but most importantly, it

maintains the purity and freshness of its content and protects them from outside

environment. For packaging, the use of a burlap sack is the usual, and on the

side of the sack, the logo is present. This will also help in advertising and in

making the brand well known and reputable.

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Figure 7. Packaging for Primera Presko

ADVERTISING AND PROMOTION STRATEGIES

Advertising and Promotional Strategies refer to the techniques used by the

people behind a new product to gain recognition from the public. It is achieved by

using the different types of media, be it through social media, brochures,

newspapers, magazines or television.

Advertising and promotion are essential in marketing because this is the

best way to communicate to customers. Advertising plays a significant role to

producers and customers because this helps the producer to inform the public

about their product and would somehow increase their sales while for customers,

advertising is important because customers would know the various products

available in the market that would benefit them.

 76

The researchers recommended using free sampling and brochures as

their type of promotion for the product. Free sampling gives the customers a

chance to try or use the product without any expenses on their part, which is

practical in introducing a new product. Some customers would not risk their

money for something new, making free sampling as an efficient technique or a

catch for them, not just because they have tried the quality of the product but

also for the fact that it is for free. When advertising, it is common to give away

brochures. It helps introduce the product to the customers and give them

knowledge about the varieties and the unique features of the said product. This

type of promotion is somewhat cost effective because it would not cost that much

to create a brochure, it would only need a design that would catch the attention of

the public and its content should feature only the best about the product.

The only limitation in promoting the product is that only select customers

will have the free samples and brochures. The customers are the different coffee

shops located in Cebu City, which is mainly the target market for the product.

Free samples given to those cafes will be 10kg, and distributed only to their main

branch.

The usage of social media is prevalent in the target market; therefore, a

social media site for the business is a welcome option.

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Figure 8. Social Media Site for Primera Presko

STORAGE AND WAREHOUSING

The storage for the green coffee beans must be cool and dry. Exposure to

the sun or moisture will rapidly deteriorate the coffee. Burlap bags are often used

for coffee bean storage because they allow airflow. It also preserves the coffee

bean longer than plastic or paper bags. Burlap bag is aired on the patios before

storing coffee to prevent a baggy flavor or burlap scent from being imparted to

the coffee.

Roasted coffee bean maintains its freshness the longest. An inert gas

such as nitrogen will preserve the whole beans for an extended time. Roasted

coffee beans exposed to the environment kept for no longer than a week even if

a vacuum seal is in place. Very darkly roasted coffee is even more vulnerable to

oxidation and this is stored for an even shorter period.

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The green coffee beans will have more space than roasted beans in the

warehouse since green coffee beans can be stored for a longer period of time

compared to roasted beans. The roasted beans will only be stored for a short

period while waiting for the delivery. Two vents are located in each room to

ventilate the rooms.

Figure 9. Warehouse for Storing Beans

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CHAPTER IV

MANAGEMENT ASPECT

It is of extreme importance that there is proper management, effective and

efficient decision making, and careful planning to achieve the company’s goals

and objectives. There should be a clear vision on what the company hopes to be

in the future and an understanding on what the company is doing to get a clear

idea on what steps to take in order to realize these goals and objectives. Proper

management offers long-term benefits to the members of the organization and

the business as a whole. Management directly relates to how efficiently they

attain the goals they have set.

MANAGEMENT DURING THE PRE-OPERATING PERIOD

During the pre-operating activities, there are several activities to be

accomplished to prepare for the ordinary business operations. These include

general project planning, sourcing of funds, contractual negotiations, securing of

business licenses and permits, groundworks, canvassing for equipment and

construction materials, constructing improvements, canvassing for furniture and

fixtures, acquiring raw materials, recruiting employees and training them, and

finally advertising and promotions.

Project Timetable
The researchers recommend the use of project timetables to help

establish the proper timing of the procedures needed. This tool helps the
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executor of the proponent to allocate the periods of time necessary to accomplish

each activity, especially the important ones. It also helps them from wasting time

on menial tasks that have been allocated more than enough time – therefore

shortening the time

MONTHS
PRE-OPERATING 1
ACTIVITIES 1 2 3 4 5 6 7 8 9 10 1 12
2018
Establishment of Coffee
Plantation
1. General Project Planning                        
2. Sourcing of Funds                        
3. Contractual Negotiations                        
4. Securing of Business
Licenses and Permits                        
5. Groundwork                        
6. Canvassing and Acquisition
of Equipment & Construction
Materials                        
7. Construction of Buildings                        
8. Canvassing and Acquisition
of Furniture and Fixtures                        
9. Acquisition of Raw Materials                        
10. Recruitment of Employees                        
11. Training of Employees                        
12. Advertisements and
Promotions                        
13. Planting and Maintenance
of Seedlings in Nursery                        
Lay-outing and Holing                        
14. Lay-outing and Holing                        
15. Transplanting                        
Care and Maintenance                        
16. Weeding, Mulching,
Caring, and Fertilizing                        
17. Pest Control                        
18. Watering                        
available for major tasks.
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PRE-OPERATING 1 1 1
ACTIVITIES 1 2 3 4 5 6 7 8 9 0 1 2
2019
Establishment of Coffee
Plantation
1. General Project Planning                        
2. Sourcing of Funds                        
3. Contractual Negotiations                        
4. Securing of Business
Licenses and Permits                        
5. Groundwork                        
6. Canvassing and
Acquisition of Equipment &
Construction Materials                        
7. Construction of Buildings                        
8. Canvassing and
Acquisition of Furniture and
Fixtures                        
9. Acquisition of Raw
Materials                        
10. Recruitment of
Employees                        
11. Training of Employees                        
12. Advertisements and
Promotions                        
13. Planting and
Maintenance of Seedlings
in Nursery                        
Lay-outing and Holing                        
14. Lay-outing and Holing                        
15. Transplanting                        
Care and Maintenance                        
16. Weeding, Mulching,
Caring, and Fertilizing                        
17. Pest Control                        
18. Watering                        
 82

PRE-OPERATING 1
ACTIVITIES 1 2 3 4 5 6 7 8 9 10 1 12
2020
Lay-outing and Holing
1. Lay-outing and
Holing                        
2. Transplanting                        
Care and Maintenance                        
3. Weeding, Mulching,
Caring, and Fertilizing                        
4. Pest Control                        
5. Watering                        

Figure 10. Gantt Chart Pre-Operating Activities

General Project Planning

Brainstorming, planning, and formulation of strategies are the

factors that contribute to the formation of a business organization. All

these are necessary to implement the project successfully. The

proponents believe that one month of this phase/activity is ample and

sufficient to address the central matters regarding the flow of operations.

Sourcing of funds

Funds are necessary to support the business. There is a higher risk

of the business failing if the reserves are inadequate. Inadequate capital

equates to forgone necessary expenses. Thus, this phase in the pre-

operating period is vital to determine what source of capital is most

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appropriate for the operations of the business. The proposal, being a

partnership, will make use of the contributions of the partners to further the

trade. This activity will approximately take two weeks to complete.

Contractual Negotiations

Once the capital is secured, the need for an area to conduct the

business is addressed. The proposal recommends that the partners utilize

any space in their homes as an office and the renting of a warehouse. The

proponents believe it sufficient to rent a storeroom for the harvest since

coffee trees do not bear fruit all year round. This activity will take two

weeks to accomplish, including the search for possible spaces and the

negotiation with the owner. These discussions also include the contracts

for partnerships and the splitting of profits and losses.

Sourcing of Business Licenses and Permits

Philippine laws mandate the necessity of processes and regulations

which will allow a business to lawfully operate. After securing the place of

the commerce, it is necessary to comply with the statutory requirements

provided by the government so it can legally operate. It is in this phase

that the executor of the project will follow the standards set by law to

acquire its registered name. The sourcing of business licenses and

permits will take more than one month to complete.

Groundwork
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It is necessary to check the soil and test it for any required

fertilizers in the future. Ocular inspection may be needed to find out any

specific pests that may be hard to kill as well as the possibility that coffee

rust may be present in the area. Another groundwork is the construction of

roads within the plantation for ease of travel and deliveries. It is estimated

to finish around one month.

Canvassing and Acquisition of Equipment & Construction Materials

After securing the place of business and complying with the

statutory requirements, there arises the need to prepare and renovate the

site to make it appropriate for the implementation of the project. It is

essential that the site has a clean environment with proper sanitation,

considering that the project involves consumable produce. It is necessary

to improve the area so working space is maximized, and the workers can

smoothly go through with the daily operations of the business. Equipment

must also be researched and find the best deal for funds. This phase will

take about six weeks to complete.

Construction of Improvements

There will be necessary improvements to build on to make sure that

the business will run smoothly. Required improvements to the farmer’s

shed, the nursery, and the smaller shed to store recent harvests will help

pay for itself in the long run. The required time it will take would be around

eight weeks to complete.

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Canvassing and Acquisition of Furniture and Fixtures

There is a need to canvas for furniture and fixtures to make sure

that those acquisitions are only of the best quality. The procurement of

furniture and fixtures such as tables, chairs, lighting materials and other

supplies, is necessary for the preparation of the site. The canvassing and

procurement of the furniture and fixtures will take approximately two

weeks to finish.

Acquisition of Raw Materials

Materials are necessary to start the production. These are

purchased from Adlaon, Cebu City, one of the very few areas in Cebu that

have successfully grown coffee. The acquisition will take about one week

to do, and the acquisition includes visiting most of the sellers to scout for

the best quality.

Recruitment, Hiring, and Training of Employees

Manpower is one of the most driving forces of every business

organization. This driving force is needed in the daily operations of the

business, and it helps in making the operations function well. It is essential

that employees are efficient and qualified to manage the business and
 86

oversee the operations. The proponents recommend vetting and going

through a rigorous recruitment process and a mandatory training period.

Advertisements and Promotions

The proposed project is a small-scale enterprise operating in the

local community. Thus, it is less costly to make the product known to the

general public. Samples will be given to respondents for one week to let

them evaluate the acceptability and quality of the product introduced. The

proponents also suggest advertisements through word-of-mouth and the

ever-dynamic social media.

Groundwork

The last pre-operating activity would be another groundwork. This

is to test any differences of soil fertility between the two groundwork tests.

If anything is lacking, there is an appropriate time of two weeks to comply.

Pre-Harvest Activities

Coffee will yield on the 4 th year, and there must be activities to

maintain and make sure coffee gives a productive harvest. The only

significant part of this action would be the planting and replanting of the

coffee seedlings on July. Other activities such as manure application,

weeding, pest control, and other maintenance works are done evenly

through the year and will continue to do so until the end of the life of the

plantation.
 87

Normal Business Operations

After completing all the necessary activities in the pre-operating

period, the enterprise can already start its usual operations. In this case,

the normal operations will begin when the trees start bearing fruits.

MANAGEMENT DURING THE OPERATING PERIOD

Operating period is the time when the business finally does what it

intended to do. The success of the trade lies on how the executor manages the

entity’s operation and maximizes the assets available for use.

Form of Organization
This is essential to every project because its success depends on how

suitable the system is to the type of business engaged into. After deciding what

to implement, the next thing to do is to put up capital for start-up. The proponents

suggest having a general partnership as a form of business organization.

A partnership is a contract between two or more persons, who bind

themselves to contribute money, property, or industry to a common fund with the

intention of dividing the profits thereof. Being a small-scale enterprise, the

proponents believe a corporation would be too much in terms of complexity and

expenses. To form a sole proprietorship would not do, it may not be able to

handle all the activities necessary to operate and manage the business. For

these reasons, the proponents believe that a partnership can provide the needed

control over the commerce, and provide all the partners with security in the case

the project fails.

 88

In a partnership, the partners all share in the profits according to an

agreement, or if no stipulation is provided, divided pro-rata among the partners

by their respective capital contributions. This partnership shall be composed of

two partners, one contributing land worth Php 6,013,000 and the other partner

contributing Php 1,000,000 cash. Their profit and loss sharing ratio is agreed to

be 60:40 and both are managing partners. The partners will also be legally liable

for any debts in excess of the partnership’s assets.

Organizational Structure
An organizational structure is the hierarchical arrangement of lines of

authority. This arrangement determines the roles, power, and responsibilities of

people under the employ of the executor and shows how these are assigned,

controlled, and coordinated. It also shows the flow of information between the

different levels of management. An organizational structure also showcases a

visual representation of how the organization is shaped, and how it can best

move forward in achieving its goals.

The proponents firmly believe that a modest and functional organizational

structure would work best in businesses that focus on the production and sale of

a single product. The figure below shows the organizational chart for this

proposed commerce.
 89

OWNER
(Supervising
Partner)

Bookkeeper

Selling
Farmers Roasters
Partner

Figure 11. Organizational Chart

Job Title and Description

Labor is a significant component in making any product, and management

must carefully screen the human workforce before recruitment into the company.

There are different functions of the business and various positions which are

available and all of which is described further below. Only the most should

occupy the different stations. There are two partners namely the partner

contributing land who is responsible for supervising the farmers’ day to day

works, henceforth named as “The Supervising Partner,” and the other partner

contributing capital which is responsible for reaching out to customers and

selling, henceforth named as “The Selling Partner.”

The following are the functions of the human workforce.

The Selling Partner must:

 90

 Oversee all business transactions.

 Take full control of the business

 Find and get into contact with customers

 Establish good rapport with customers

 Contract with and issue official receipt to customers

 Responsible for the collection and disbursement of cash

The Supervising Partner must:

 Manage the inventory and purchase of raw materials

 Supervise, drill, and train personnel

 Perform quality control

 Count and secure finished goods

 Be responsible for approval of products to be delivered

 Plan logistics for delivery

The Bookkeeper must:

 Record the transactions of the business once a week

 Keep and maintain accounting records

 Prepare the annual financial statement

 Prepare and file the income tax return

The Farmer must:

 Do ground and field preparations

 Care and sustain for coffee saplings in the nursery

 91

 Plant the coffee saplings on July

 Apply fertilizer, vitamins, and pesticides to the coffee

 Mulch and maintain pH levels of the soil

 Cut down weeds and control pests

 Harvest the coffee

 Maintain and clean the estate

 Dry, hull, and sort the coffee after harvest

 Bag all marketable coffee

 Prepare waste management for unmarketable coffee

The Roaster must:

 Roast coffee well

Personnel Specification
The following are the characteristics and qualities that the employee must

possess to be efficient and effective in performing their respective duties.

Bookkeeper (Contractual Basis)

 A graduate of Bachelor of Science in Accountancy or Management

Accountancy or TESDA NC-III Accredited

 General knowledge of accounting for SME’s

 Male or Female

 Between 22 to 50 years old

 92

 Preferably has two (2) years of experience in accounting

 Organized and punctual

 Computer literate

 Decent communication skills and people skills

Farmer

 Must have high-school diploma

 General knowledge on the care of fruit-bearing trees

 Broad knowledge of land cultivation and fertilizer

 Ability to operate farm machinery, equipment, and vehicles

 Ability to perform moderate to heavy manual labor

 Ability to understand and follow verbal instructor

 Above 18 years old

 Male or Female

 Must be mentally and physically fit

 Must have a health certificate

 Flexible and trainable

 Preferably with one-year experience

Roaster

 Must have high-school diploma

 Ability to operate roasting machinery and equipment

 Ability to perform moderate to heavy manual labor

 93

 Ability to understand and follow verbal instructor

 Above 18 years old

 Male or Female

 Must be mentally and physically fit

 Must have a health certificate

 Flexible and trainable

Working Schedule
The following table shows the time required to start and finish a day’s job.

Table 30. Working Schedule

POSITION WORKING HOURS

Supervising Partner/ Farmer/ 8:00 am – 12:00 noon

Roaster/ Harvester 1;00 pm – 5:00 pm

Recruitment Procedure
Selecting prospective employees is an essential job and hirers must be as

thorough as possible. Applicants are filtered through evaluating and testing their

skills and knowledge in the task they applied. The evaluation and testing is done

through a series of interviews and actual initial practice of the job. Until such

time, after thoroughly screening the applicants, the most qualified applicant will

then be hired. This process is one of the most critical stages in making a

management structure since the decision of who is employed reflects the

 94

efficiency of the workforce of the management. The process of hiring will be as

follows:

First, set the job vacancies and prepare the job description to determine

the specifications, skills, and guidelines required by the job. The job description

helps in the determination of which applicant is the most qualified. Next, give

notice to the public about the job vacancy through posting on social networking

sites, flyers, and word of mouth. Then, applicants will be required to submit the

following requirements enclosed in a brown envelope upon application:

a.    Police Clearance

b.   Copy of NSO Certificate

Lastly, after the initial screening of the applicants, the company will then

call the chosen applicants who were qualified for the job. Series of interviews and

ability tests are conducted to thoroughly screen the applicants until the most

qualified is hired.

Compensation Plan
One of the factors that will motivate employees will be remuneration. They

will be more likely to render the jobs well with a satisfactory remuneration plan. A

proper and just compensation will give help to the system and must be

established and maintained. Employees will receive their remuneration twice a

month on the 1st Friday and the 3rd Friday. Presented in the following are the

wage rates of the employees.

 95

Table 31. Wage Rates of the Employees

POSITION NUMBER AMOUNT

Farmer/ Roaster 4 ₱7,500/ month or

₱3,750/ payday

Employee Benefits
Giving incentives and insurance will help the livelihood and outputs of the

workers. For the proposed business’ benefit plans, the following would be

advantageous.

 A year-end bonus equivalent to the employee’s one month pay and

will receive it on December.

 Employee and employer will share the monthly contributions like

SSS, PhilHealth, and PAG-IBIG.

 Increase in salary on every year of experience of the farmer

Management Policies
The affairs of the business must be managed appropriately to ensure

better treatment for the employees and the organization. The rules created are to

prevent injury and avoidance of illicit acts while increasing productivity.

 Newly hired employees must attend orientations and training before

starting work to help guide and facilitate what to do and what not to

do for the pursuit of the objectives of the organization.

 96

 Employees must arrive on time and sign the attendance sheet.

Regular working days are from Mondays to Saturdays.

 Lunch break is from 12:00 noon to 1:00 pm for non-agricultural

work while a break is provided between the hours of 10:00-3:00 for

the farmers taking a rest from the oppressive heat of the sun.

Farmers must drink water every hour to prevent dehydration.

 Employees are always monitored and must behave professionally.

 Storage areas and nurseries are a priority in cleaning.

 Equipment are cleaned before and after use.

 Observe proper and careful handling of machinery.

 Employees planning to be absent must inform the owner two days

before the absence.

 Employees are not allowed to achieve company goals at the

expense of violating the company’s or country’s laws and

regulations.

 No work, no pay.

 Violation of the rules are met with disciplinary actions.

 Vices such as working under the influence of alcohol and smoking

are strictly not allowed inside the plantation.

 Employees planning to resign must inform the owner two weeks in

advance of the date of resignation.

For bookkeepers, the following are observed.

 97

 Keep all record of financial transactions arising from the business.

An electronic copy is fine if keeping physical copies are unrequired.

 Tax returns are filed and remitted on time.

 Accounts are balanced.

 Analyze the information done and report to management any

findings.

For farmers, the following are observed.

 Before using the equipment, ensure your personal safety, then

others, and finally of the equipment itself.

 Quality control must be kept high. There can be no defects in the

final product.

 Farmers must arrive on time in the morning.

 After storage and shipment, the warehouse must be kept clean.

 During harvest, it is imperative to be on time.

Violations and Sanctions

The following violations will merit punishments.

 Warning W

 Reprimand R

 Suspension S

 Garnishment of Wages G
 98

 Termination T

Table 32. Violations and Sanctions

Offenses 1st 2nd 3rd Last

Tardiness W RG S
Unsigned Attendance W RG S
Negligence of Duty W RG S
Unscheduled Absences W RG S
Destruction of Property W RG S T
Vices in the Premises W RG S T
Bad Conduct RG SG T
Use of Illegal Drugs T
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CHAPTER V

LEGAL AND TAXATION ASPECT

Every business must first comply with all the legal requirements provided

by the government so that it can lawfully start its operations. This chapter

contains the different legal requirements for business registration and also

provides matters regarding taxes related to the proposed project. For

convenience in paying taxes, it is essential to know about the taxation

requirements, and as a business, it is also necessary to comply with the taxes

imposed by the government for the benefit of the public.

LEGAL ASPECT
Any business, whether it is a sole proprietorship, partnership or

corporation, can never operate without conforming to the requisites given by the

law. The venture should not be in contrary to law, morals, good custom, public

policy, and public order. The following are the legal requirements set by the law

for the owner to comply.

Registration of the Business Name

The proposed business is a partnership, and registered with the Securities

and Exchange Commission so that it can attain separate juridical personality

since the contribution contains an immovable property. The documentary

requirements for the registration of the partnership are as follows:

 Name Verification Slip with the reservation of the partnership name

 Articles of Partnership
 100

 Registration Data Sheet

 Affidavit of a partner undertaking to change partnership name

 Certificate of Bank Deposit

The following information are required:

 Name, telephone number, and purpose of the partnership

 Principal office address

 Name, citizenship, address, birthday and TIN of the partners

 Capital contribution of the partners

Business Permit Procurement

Getting the right permits and licenses are done before running a business,

otherwise, it may end up as a business that is operating without a license, which

can be punishable under business laws. A company to transact legally must

obtain the mandated business permits and licenses provided by the government

in the principal location of the proposed plantation, which is in Dalaguete, Cebu

City. The following are the list of permits and licenses:

 Barangay Clearance

 SEC Certificate of Registration

 Mayor’s Business Permit

 BIR Certificate of Registration

 SSS Registration

 PhilHealth Registration
 101

 Pag-IBIG Registration

 DOLE Registration

 Bureau of Food and Drugs (BFAD)

 Bureau of Plant Industry (BPI)

Barangay Clearance

The barangay clearance is to certify that the business has abided

by all the necessary requests of the barangay where it is located. The

record also assures that it is located in the said barangay.

SEC Certificate of Registration

This certificate is needed for a business to be recognized as a legal

or juridical entity, in cases where immovable property is contributed to the

business. This kind of certificate is a prerequisite for registering with the

BIR, Mayor’s Office, and other government offices.

Mayor’s Business Permit

This permit is needed for every business to operate in the place of

commerce. This document varies depending on their respective city or

municipality.

BIR Certificate of Registration

This certificate is necessary for tax requirements and to get the

prospective owner’s Tax Identification Number(TIN). Registration to BIR

gives the authority to issue official receipts and invoices. The requirements

are the following:

 SEC Certificate of Registration

 102

 Mayor’s Permit

 BIR Form No. 1901 (Application for Registration) two copies

 BIR Form No. 0605 (Payment Forms) three copies

 BIR Form No. 2305 (Certificate of Update and Exemption

and Employer’s and Employee’s Information) two copies

 Professional Tax Receipt

Application for Social Security System (SSS) Membership

Businesses who use the services of another person or employees

in any undertaking is required to register in the SSS (Social Security

System). The SSS membership is necessary to secure the well-being of

its employees. The following are the requirements for registration:

1. Self – employed data record

2. Employee’s data record

3. Monthly contribution

4. Schedule of contribution

5. Quarterly contribution

6. Sickness notification

The following must be filed and submitted:

1. Form R-1 (Employer Registration)

2. Form R-2 (Employment Record)

3. Form E-1 (Personal Record)

4. Form R-3 (Contribution Payment Return)

 103

Application for PhilHealth Insurance Membership

The application for PhilHealth Insurance Membership is required for

any business to register to provide social health insurance coverage and

other health benefits to its employees. The necessary requirements are

the following:

1. Employer Data Record or ER1 Form (in duplicate)

2. Business permit or license to operate that is SEC registration

3. PhilHealth Membership Registration Form (PMRF) for each

employee (two copies)

After complying with these, PhilHealth will issue the following:

1. PhilHealth Employer Number (PEN) and the Certificate of

Registration.

2. PhilHealth Identification Number (PIN) and Member Data

Record (MDR) of registered employees.

PAG-IBIG Registration
Registration with the Home Development Mutual Fund (HDMF) is

also needed for every business to secure its Pag-IBIG Employer ID

Number and to provide the required benefits to its employees, who should

be fund members. The requirements for membership application are the

following:

1. Employer’s Data Form (EDF (HQP-PFF-002)

2. Specimen Figure Form (HQP-PFF-003)

 104

3. SSS Certification (if already registered)

DOLE Registration
For businesses with five or more employees, they is required to

register with the Department of Labor and Employment to monitor its

compliance with the labor laws.

Bureau of Plant Industry (BPI)

A permit from the Bureau of Plant Industry is included as a special

permit because the business is related to the cultivation of plants which is

under their authority.

TAXATION ASPECT
Taxation is the practice of collecting money from individuals, goods or

services and others by the government. It is an inherent power of the

administration for public services. It is a means of the system to finance their

expenditures. Without taxation, there would be no roads and bridges and public

schools. Every citizen and every business has the responsibility for the

development of the general well-being of the society and the community as it

continues to flourish. This responsibility is achieved only if we pay taxes honestly

and correctly. This chapter contains the tax requirement applicable to the

proposed business.
 105

Withholding Tax
Withholding Tax is an income tax paid to the government, rather than the

income recipient. The tax is withheld/deducted from the income of the recipient.

The amount deducted in advance is a credit against the tax due of the income

recipient. The Withholding Tax must be remitted monthly using the BIR-Form

1601. As of 2018, the effectivity of the new tax rates released by the BIR is now

valid.

However, the withholding tax table is only for estimating the tax due, since

the farmers, roasters, and all other employees employed may have some other

source of income, therefore leading to exceeding the thresholds set by the tax

reform. The partners’ respective shares are withheld upon their receipt of profits.

Documentary Stamp Tax

The Documentary Stamp Tax is a tax on the exercise of specific rights

embodied in a document evidencing such right exercised. Instruments, loan

agreements and papers evidencing the acceptance, assignment, sale or transfer

of an obligation, right or property incident to it. The form needed is the BIR-Form

2000 and it is filed in three copies, two copies for the BIR and one for the

taxpayer. Deadline for filing is on the 5 th day after the end of the month the

taxable document was signed, issued, accepted, or transferred. The researchers

recommend the business form of a business partnership – therefore, the

business will pay the Documentary Stamp Tax of Php 15 upon registration and

renewal of the BIR and DTI clearance.

 106

Income Tax
Income tax is the tax that governments impose on financial income

generated by all entities within their jurisdiction. The proponents recommend that

the proposed business be a partnership. Said form of business is subject to the

30% corporate income tax, even though it is registered as a partnership. Many

jurisdictions refer business entities as a corporate tax, which means that

business partnership formed for profit is taxable as a corporation. BIR-Form 1120

is filed by the partnership quarterly.

 107

CHAPTER VI

FINANCING ASPECT

In business, the most significant factor to consider is money – how much

money will be needed to put in the commerce and how much money will be

earned by investing or engaging in trade. It is of utmost importance that the

monetary resources be appropriately managed to maximize the funds and cover

the necessary pre-operating costs and the actual costs in the normal operation.

Financing involves extensive planning – which is necessary to initially

evaluate how much of the funds are needed to cover the start-up costs and the

operating costs. Extensive preparation also result in having an ample time to

decide where and from whom to acquire the materials and equipment at the least

cost possible.

Provision of sufficient funds is needed to ensure the effective and efficient

flow of operations. Therefore, it is imperative that the prospective implementers

follow the allocation of the assets to maximize the financial standing of the
 108

business activity. This chapter mainly provides data regarding the distribution of

the capital to start business operations.

Source of Financing
There are some sources of financing available to the prospective

implementers, but before any decision regarding the source of funding is made,

one must factor in all the necessary costs of engaging in business.

The amount of capital needed is entirely dependent on the identified costs

of the business. The proposed project is the development of a plantation which

will require a hefty amount of investment. The proponents believe that entering

into a partnership to finance the project is the most appropriate. The prospective

implementers have the option of shouldering the costs using their funds or

entering into loan agreements with banks. The capitalist partner must shoulder

the obligation of land. This responsibility is huge, and as a recompense, the

partner will receive a higher part of the profit share. The proponents also

recommend that the partnership borrow money from the Land Bank of the

Philippines – which grants loans to agricultural business sectors.

Project Cost
The start-up capital needed will be used to finance the operation and to

cover the costs of legalizing the business, acquisition of the materials necessary,

and all other expenses incurred.

The proposed project start-up capital of Php 7,618,392.50 is broken down

as follows:
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Estimated Project Cost

Pre-Operating Expenses Note Subtotal
Research Cost 1 7,700.00
Permits and Licenses 2 9,750.00 17,450.00
Property, Farm, and
Equipment
Land 3 6,013,000.00
Farmhouse 4 301,763.50
Office Equipment 5 28,589.00
Farm Tools 6 8,875.00
6,362,821.50
Furniture & Fixtures 7 10,594.00
Working Capital
Raw Materials 8 4,200.00
Freight In 9 3,000.00
Production Supplies 10 77,088.00
Office Supplies 11 12,537.00
Utilities 12 180,000.00
Cleaning Supplies 13 5,946.00
Salaries and Wages 14 883,350.00
Professional Fees 15 72,000.00 1,238,121.00
7,618,392.50
Total Estimated Project Cost

Note 1
Research Cost
Transportation Cost Php 1000.00
Photocopy and Bookbinding 700.00
Honorarium 3,500.00
Meals and Snacks 500.00
 110

Printing 2,000.00
Total Php 7,700.00

Note 2
Permits and Licenses
SEC Registration Php 6,000.00
Health Certificate 150.00
Fire Safety Inspection 100.00
Business Permit Notarization 300.00
Barangay Clearance 150.00
Mayor's Business Permit 600.00
BIR Registration 1,500.00
Zoning Certificate 300.00
Electrical Permit 100.00
Sanitary Permit 300.00
Building Permit 200.00
Documentary Stamp Tax 50.00
Total Php 9,750.00

Note 3
Land
Actual Cost (40,000 sq. m. x Php 150.00) Php 6,000,000.00
Licenses 8,000.00
Survey 5,000.00
Total Php 6,013,000.00

Note 4
Farmhouse
Description Quantity Unit Price Amount
Sand 10 m³ 1,300.00 13,000.00
Gravel 1 m³ 1,300.00 1,300.00
Cement 100 sacks 172.00 17,200.00
Roof 140 sheets 148.00 20,720.00
 111

Gutter 20 pcs 125.00 2,500.00

gallon
Primer Red 5 s 480.00 2,400.00
Vulcaseal 5 cans 210.00 1,050.00
Tie Wire #16 16 kgs 57.00 912.00
Common Nails
(1.5") 5 kgs 54.00 270.00
Concrete Nails 5 kgs 75.00 375.00
Umbrella Nails 5 kgs 80.00 400.00
Hollow Block (4") 700 pcs 7.50 5,250.00
Door Lock 7 pcs 168.50 1,179.50
Door Jamb
(3"x6"18") 7 pcs 780.00 5,460.00
Marine Plywood
90 pcs 340.00 23,800.00
(1/4"x4"x8")
Deformed Bar
(10mm) 150 pcs 92.00 13,800.00
Steel Angular Bars
100 bars 350.00 35,000.00
(3/16"x2"x20")
C - Purlins 45 pcs 530.00 23,850.00
Text Screw 1000 pcs 1.80 1,800.00
Welding Rod 1 box 695.00 695.00
Coco Lumber
(2"x3"x12") 52 pcs 72.00 3,744.00
Bulb 10 pcs 89.00 890.00
Bulb Socket 10 pcs 25.00 250.00
Fluorescent 12 pcs 200.00 2,400.00
Junction Box 10 pcs 25.00 250.00
Electric Tape (big) 20 pcs 30.00 600.00
Cable Electrical 500 m 35.00 17,500.00
Circuit Breaker (big) 1 8,010.00 8,010.00
Duplex Wire 150 m 40.00 6,000.00
Single Switch 7 pcs 20.00 140.00
Triple Switch 1 pc 30.00 30.00
Two Gang Outlet 3 pcs 60.00 180.00
Three Gang Outlet 2 pcs 50.00 100.00
Urinal Set 1 sets 2,500.00 2,500.00
Faucet 2 pcs 39.00 78.00
PVC Pipe 3 pcs 80.00 240.00
PVC Elbow 2 pcs 25.00 50.00
Total Cost of Php 213,923.50
Materials

Labor Construction:
30 Labor Days 87,840.00
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Total Farmhouse Php 301,763.50

Cost

Note 5
Office Equipment
Quantity Unit Price Amount
Description
Computer Set 1 P24,199.00 Php 24,199.00
Printer 1 4,390.00 4,390.00
Total Php 28,589.00

Note 6
Farm Tools
Description Quantity Unit Price Amount
Rake 12 P189.00 Php 2,268.00
Basket 18 87.00 1,566.00
Coffee bean sieve 6 427.00 2,562.00
Tarpaulin 6 153.00 918.00
Hose 3 514.50 1,543.50
Total Php 8,857.50

Note 7
Furniture and Fixtures
Description Quantity Unit Price Amount
Office Table 2 P2,300.00 Php 4,600.00
Dining Table 1 1,999.00 1,999.00
Chairs 5 799.00 3,995.00
Total Php 10,594.00

Note 8
Raw Materials
Description Quantity Unit Price Amount
Seeds (kgs.) 7 600.00 Php 4,200.00
Total Php 4,200.00
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Note 9
Freight-In
Description Amount
Van, inclusive of
Gasoline and
Driver Php 3,000.00
Total Php 3,000.00

Note 10
Production Supplies

Description Quantity Unit Price Amount

Fertilizer (sacks) 84 882.00 Php 74,088.00
Pesticides
(gallon) 3 1000.00 3,000.00
Total Php 77,088.00

Note 11
Office Supplies
Description Quantity Unit Price Amount
1
90.00
Ball pen 5 pcs 6.00
Short Bond paper 3 reams 145.00 435.00
Long Bond paper 3 reams 175.00 525.00
Carbon Paper 3 packs 47.00 141.00
1
120.00
Short Brown Envelope 5 pcs 8.00
1
150.00
Long Brown Envelope 5 pcs 10.00
1
180.00
Short Folder 5 pcs 12.00
1
210.00
Long Folder 5 pcs 14.00
Due Slips 3 packs 25.00 75.00
Calculator 6 pcs 500.00 3,000.00
 114

Journal Notebook 3 24.00 72.00

Fastener 3 boxes 29.00 87.00
Liquid Eraser 6 25.00 150.00
Logbook 3 59.00 177.00
Marker 6 34.00 204.00
Pencil 9 pcs 7.00 63.00
Puncher 3 75.00 225.00
Ledger 3 25.00 75.00
Stapler 3 15.00 45.00
Staple Wire 3 boxes 6.00 18.00
Scotch Tape 3 30.00 90.00
Scotch Tape Dispenser 3 35.00 105.00
Scissors 3 25.00 75.00
Cash Box 3 2000.00 6,000.00
Receipt Slip 3 75.00 225.00
Total 12,537.00

Note 12
Utilities
Description Years Annual Rate Amount
Water 3 Php 36,000.00 Php 108,000.00
Electricity 3 24,000.00 72,000.00
Total Php 180,000.00

Note 13
Cleaning Supplies
Description Quantity Unit Price Amount
Soft Broom 6 50.00 Php300.00
Broomstick 6 50.00 300.00
Dipper 9 30.00 270.00
Pail 9 40.00 360.00
Floor Mop 3 300.00 900.00
Toilet Brush 6 50.00 300.00
Dust Pan 6 60.00 360.00
Garbage Can
(large) 6 400.00 2,400.00
Detergent Soap 12 8.00 96.00
Hand Soap 24 15.00 360.00
Door Mat 6 35.00 210.00
Rags 90 1.00 90.00
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Total Php 5,946.00

Note 14
Salaries and Wages
No. of Annual No. of
Description
Workers Salary Years Amount
3 97,500.00 2 Php 585,000.00
Farmers
3 99,450.00 1 298,350.00
Total Php 883,350.00

Note 15
Professional Fees
No. of Annual No. of
Description Workers Fee Years Amount
Bookkeeper 1 24,000.00 3 Php 72,000.00
Total Php 72,000.00

CHAPTER VII

FINANCIAL ASPECT

The financial statements show the monetary activities of the business. The

aspect is essential relevant information used for making decisions since it

includes the basic financial statements, including a management discussion and

analysis. A structured presentation and a simple form are used to present the

information.

The forecasted financial statements presented in this aspect include

financial position, financial performance, changes in owners’ equity, cash flows

and its supporting schedules.

 116

FINANCIAL ASSUMPTIONS
The following are the assumptions used in the preparation of financial

statements in the chapter.

Pre-operations and Operations

1. Pre-operating activities will start in January 1, 2018.

2. The normal operations of the business will start on January 2021.

3. The initial capital of the business is Php 7,618,392.50.

4. The reporting period of the proposed business will use the calendar basis.

5. The accounting method used will be Accrual Method.*

6. The proposed business will operate five days every week from Monday to

Saturday at 9:00 am to 5:00 including lunch and snack break, with

Saturday as the delivery day.

Sales

1. The initial selling price of the product is 450 in the first year. On the

second year, it will still be at 450, but will increase to 500 in the third year.

For the succeeding years, the selling price will increase by 2%.

2. Sales are made of 57% Cash Sales, and the remaining 43% in Credit.

3. The entity will offer a trade discount of 10% on the first year, given

indiscriminately.

Direct Materials

1. Direct Materials are seeds used in the construction of bearer plants.

 117

2. For roasted coffee, the direct material is the green coffee beans harvested

from the mature trees. The valuation of direct materials is the market price

of the green coffee beans at the beginning of the year.

Direct Labor

1. For the pre-operating period, three farmers are hired at a rate of Php

360/day, in compliance of the Current Daily Minimum Wage Rates of

Region VII, Class A, effective March 10, 2017.

2. For the operating period, one roaster employed with the same wage rate

as the farmers. During harvests, it is necessary to retain five additional

workers.

3. Thirteenth month pay is paid every December. Workers not employed for

the whole year, but has worked for at least one month, are entitled to the

thirteenth month pay in proportion to the number of days worked.

4. Labor Cost Summary shows the allocation of the Direct Labor. Allocation

of costs to Immature Trees bases its assumption on the remaining

immature trees. Costing method used is Specific Allocation.

Factory Overhead

1. Allocation of FOH bases its assumption on the remaining immature trees.

Accounts Receivable

1. Credit customers can avail of a 2/10, n/30 discount.

2. The Doubtful Accounts Expense is at 2%.

Finished Goods Inventory

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1. The inventory valuation method shall be the First in, First out (FIFO)

Method.

2. Of the annual production, unsold goods is at 8.34%.

Direct Materials Inventory

1. The First In, First Out (FIFO) Method is used for inventory valuation.

2. The ending inventory for the Green Beans must be sufficient to cover the

needs for the next period’s projected sales.

3. The purchase of the seeds is not a valid creditable input tax.

Production Tools, Supplies, Machines, Equipment, Furniture and Fixtures

1. All purchases of tools, supplies, machines, equipment, furniture, and

fixtures is in cash.

2. No salvage value for all depreciable assets.

3. The purchase price of Land is Php 6,013,000. This is inclusive of Php

13,000 for survey and licenses. The purchase price accounts for the land

and the safety fence. The safety fence has a value of Php 10,000 and is a

Land Improvement. The Balance Sheet carries the land at Php 6,003,000,

not depreciated and checked for impairment annually.

4. Office equipment, comprising of a computer set and a printer, shall have a

useful life of five years.

5. Farm equipment, consisting of one coffee huller and a coffee roaster, shall

have a useful life of ten years.

6. The furniture and fixtures used in the production shall have a useful life of

five years.
 119

7. The Farmhouse constructed on the first month of 2018 shall have a useful

life of ten years. Construction will finish before month end.

8. The Nursery built on the first month of 2018 will have a useful life of three

years. Then, it will turn into a storage shed.

9. The Storage shed built from the remains of the nursery shall have a useful

life of ten years.

10. Bearer trees are Property, Plant, and Equipment under PAS 41.

Therefore, immature coffee trees, being bearer trees, are constructions in

progress. Undeveloped coffee trees do not depreciate. The growing period

capitalizes all expenses incurred.

11. The bearer trees mature on the 4 th year and has a useful life of twenty

years.

Office Supplies

1. Purchases of office supplies are in cash on a prepaid basis, and expensed

when used.

2. In the balance sheet, 40% of office supplies will remain to be usable for

the next period. The entity will purchase the 60% every end of the year to

replenish the supplies.

Cleaning Supplies

1. Purchases of cleaning supplies are in cash on a prepaid basis, and

expensed when used.

2. In the balance sheet, 30% will remain to be available for use in the next

period. The entity will buy the 70% every end of the year.
 120

Utilities

1. The Electricity Cost shall increase by 5% annually. The Cost for Water will

increase by 3% annually.

2. The allocation for electricity and water utility is to 80% to factory overhead

and 20% to general administrative expenses.

3. Telephone expense is part of general administrative expense only.

Permits and licenses

1. All payments for permits and licenses are in cash.

2. Disbursements for the licenses are general administrative expense only.

Advertising expense

1. No increase in advertising expense expected.

2. The ending inventory sample shall be zero, and charged to advertising

expense.

Repairs and Maintenance

1. Repairs and Maintenance expense is allocated 100% to Factory

Overhead.

2. No increase in repairs and maintenance cost.

Documentary Stamp Tax

1. Documentary Stamp Tax payments coincide with incurrence.

Withdrawals
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1. The partners’ can withdraw any amount as long as the Ending balance

does not fall below Php 400,000.00.

2. The partners can only start withdrawing on the 2 nd year of operations.

Taxes and Licenses

1. Withholding tax for professional fees are 10%.

2. Withholding tax for partner’s shares are 10%.

3. Income tax accruals are one quarter’s worth of income tax.

4. All other accruals are one month’s worth of expenses.

 122

Primera Presko Company

Statement of Financial Performance
For the Years Ended December 31

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Net Sales 1 - - - 755,188 1,391,100 2,521,189 2,657,426 2,710,575
Less: Cost of Goods Sold 3 - - - 844,845 1,219,882 1,661,136 1,816,012 1,913,410
Gross profit - - - (89,657) 171,219 860,053 841,414 797,165
Add: Other Operating Income 4 - - - 1,047,798 1,727,492 2,896,927 2,983,875 3,078,826
Total Gross Income - - - 958,141 1,898,711 3,756,979 3,825,289 3,875,991
Less: Operating Expense 12 94,947 103,049 103,413 156,636 162,112 160,829 162,459 163,378
Operating Income (Loss) (94,947) (103,049) (103,413) 801,505 1,736,599 3,596,150 3,662,830 3,712,613
Less: Finance Cost 45 - - - 96,681 80,983 65,139 49,135 32,957
Taxable Net Income (94,947) (103,049) (103,413) 704,823 1,655,615 3,531,011 3,613,695 3,679,656
Less: Income Tax Expense (Benefit) 50 (28,484) (30,915) (31,024) 121,024 496,685 1,059,303 1,084,109 1,103,897
Net Income (Loss) After Taxes (66,463) (72,135) (72,389) 583,799 1,158,931 2,471,708 2,529,587 2,575,760
 123

PrimeraPresko
Statement of Cash Flow
For the Years Ended December 31

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Cash Flow Provided (Used) by Operating
Activities

Net Income (Loss) IS (66,463) (72,135) (72,389) 583,799 1,158,931 2,471,708 2,529,587 2,575,760
Uncollectible Account Expense 25 - - - 6,499 12,241 22,185 23,384 23,851
Depreciation Expense – FOH 11 51,081 51,081 51,081 77,751 84,769 84,769 84,769 84,769
Depreciation Expense – GAE 19 7,837 7,837 7,837 7,837 7,837 - - -
Discount Amortization 15,185 22,101 19,717 17,117 14,282 11,192 7,822
Operating Income before working capital
changes (7,545) 1,968 8,630 695,603 1,280,894 2,592,944 2,648,931 2,692,202
Working Capital Changes:
(Increase) / Decrease

Accounts Receivable 24 - - - (27,080) (23,924) (41,434) (4,995) (1,949)

Inventory 26 - - - (76,804) (28,147) (38,096) (8,287) (8,116)

Deferred Tax Assets 51 (28,484) (30,915) (31,024) 90,423

Increase / (Decrease)

Accrued Expenses 35 6,876 (174) 25 40,028 98,965 151,629 6,724 5,369

Net Cash Flow Provided (Used) by
Operating Activities (29,153) (29,120) (22,368) 722,170 1,327,789 2,665,043 2,642,373 2,687,506

Cash Flow Provided (Used) by Investing

Activities

Purchase of Office Equipment 28 (28,589)

Purchase of Furniture and fixtures 29 (10,594)

Purchase of Farm Equipment 30 (81,600)

 124

Construction of Farmhouse 31 (301,764)

Construction of Nursery 34 (59,714)

Construction of Storage Shed 34.1 (105,987)

Construction of Coffee Trees 32 (460,319) (604,480) (588,643) (88,270)

Net Cash Flow Provided (Used) by
Investing Activities (860,980) (604,480) (588,643) (275,857) - - - -

Cash Flow Provided (Used) by Financing

Activities
Loan From Bank 45 - 1,425,000 665,000

Payment of Loan from Bank 45 - (187,500) (287,500) (287,500) (287,500) (287,500) (287,500) (287,500)
Partner's Investment 1,000,000
Withdrawals SOE (1,279,357) (2,377,543) (2,354,873) (2,400,006)
Net Cash Flow Provided (Used) By
Financing Activities 1,000,000 1,237,500 377,500 (287,500) (1,566,857) (2,665,043) (2,642,373) (2,687,506)

Net Cash Flow 109,867 603,900 (233,511) 158,813 (239,068) 0 (0) 0

ADD: Cash Beginning 109,867 713,767 480,256 639,069 400,000 400,001 400,000
Cash, Ending 109,867 713,767 480,256 639,069 400,000 400,001 400,000 400,001

Primera Presko
Statement of Changes in Equity
For the Years Ended December 31

2018 2019 2020 2021 2022 2023 2024 2025

M. Partner, Beginning 1,000,000 973,415 944,561 915,605 1,149,125 1,100,955 1,138,621 1,208,506
C. Partner, Beginning 6,013,000 5,973,122 5,929,841 5,886,408 6,236,688 6,164,432 6,220,931 6,325,759
Owner's Equity, Beginning 7,013,000 6,946,537 6,874,402 6,802,014 7,385,813 7,265,386 7,359,551 7,534,265
Add(Deduct) Profit (Loss)
 125

To M. Partner (40%) (26,585) (28,854) (28,956) 233,520 463,572 988,683 1,011,835 1,030,304
To C. Partner (60%) (39,878) (43,281) (43,433) 350,279 695,358 1,483,025 1,517,752 1,545,456
Total 6,946,537 6,874,402 6,802,014 7,385,813 8,544,743 9,737,094 9,889,138 10,110,025
Add: Additional Investment - - - - - - - -
Less: Withdrawals
By M. Partner (40%) - - - - (511,743) (951,017) (941,949) (960,002)
By C. Partner (60%) - - - - (767,614) (1,426,526) (1,412,924) (1,440,004)
M. Partner, End 973,415 944,561 915,605 1,149,125 1,100,955 1,138,621 1,208,506 1,278,807
C. Partner, End 5,973,122 5,929,841 5,886,408 6,236,688 6,164,432 6,220,931 6,325,759 6,431,211
Owner's Equity, End 6,946,537 6,874,402 6,802,014 7,385,813 7,265,386 7,359,551 7,534,265 7,710,019

Primera Presko
Statement of Financial Position
For the years ended December 31

Sched 2018 2019 2020 2021 2022 2023 2024 2025

ASSETS
Current Assets
Cash SCF 109,867 713,767 480,256 639,069 400,000 400,001 400,000 400,001
Accounts Receivable, net 24 - - - 20,581 32,263 51,512 33,123 11,221
Inventory 26 - - - 76,804 104,951 143,047 151,334 159,451
Total Current Assets 109,867 713,767 480,256 736,453 537,215 594,560 584,458 570,672
Non- Current Assets
Property, Plant, and
Equipment 27 6,815,062 7,360,624 7,890,350 8,080,618 7,988,012 7,903,243 7,818,474 7,733,705
Deffered Tax Asset 51 28,484 59,399 90,423 - - - - -
Total Non-Current Assets 6,843,546 7,420,023 7,980,772 8,080,618 7,988,012 7,903,243 7,818,474 7,733,705
TOTAL ASSETS 6,953,413 8,133,790 8,461,028 8,817,072 8,525,227 8,497,803 8,402,932 8,304,377

LIABILITY AND PARTNERS

EQUITY
CURRENT LIABILITIES
Accrued Expenses 35 6,876 6,703 6,728 46,756 145,721 297,350 304,074 309,443
Loans Payable 45 - 173,693 267,783 270,383 273,218 276,308 279,678 284,915
Total Current Liabilities 6,876 180,395 274,511 317,139 418,939 573,658 583,752 594,358
 126

Non-current Liabilities
Loans Payable 45 - 1,078,992 1,384,503 1,114,120 840,902 564,593 284,915 -
Total Liabilities 6,876 1,259,388 1,659,014 1,431,259 1,259,841 1,138,252 868,667 594,358
Partner's Equity
M. Partner's Capital SCOE 973,415 944,561 915,605 1,149,125 1,100,955 1,138,621 1,208,506 1,278,807
C. Partner's Capital SCOE 5,973,122 5,929,841 5,886,408 6,236,688 6,164,432 6,220,931 6,325,759 6,431,211
Total Partner's Equity 6,946,537 6,874,402 6,802,014 7,385,813 7,265,386 7,359,551 7,534,265 7,710,019
TOTAL LIABILITIES AND
PARTNER'S EQUITY 6,953,413 8,133,790 8,461,028 8,817,072 8,525,227 8,497,803 8,402,932 8,304,377

SCHEDULE 1:
PROJECTED SALES

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Projected Sales (based on projected market 1,89 5,23 5,40 5,40
3,207
share, in kilos) - - - 2 1 6 6

Multiplied by Selling Prices - - - 450 450 500 510 520

Total Sales - - - 851,430 1,443,266 2,615,732 2,757,078 2,812,220

Less: Discounts 5 - - - 96,242 52,165 94,543 99,652 101,645

Net Sales IS - - - 755,188 1,391,100 2,521,189 2,657,426 2,710,575

SCHEDULE 2:
COST OF GOODS MANUFACTURED AND UNIT COST OF GOODS MANUFACTURED

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Direct Materials 6 - - - 312,551 545,527 967,896 1,055,007 1,149,957
Direct Labor 7 - - - 435,836 492,994 492,994 502,853 502,853
Factory Overhead 10 - - - 173,261 220,890 255,678 258,152 260,599
Cost of Goods Manufactured - - - 921,649 1,259,410 1,716,568 1,816,012 1,913,410
 127

Divided By Units Produced 2.1 - - - 2,064 3,311 5,406 5,406 5,406

Unit Cost - - - 447 380 318 336 354

Cash Cost - - - 295 216 138 141 141

Noncash Cost - - - 151 165 179 195 213

SCHEDULE 2.1:
PRODUCED AND AVAILABLE FOR SALE
2018 2019 2020 2021 2022 2023 2024 2025
Units in Kilos Produced Per Day - - - 8 13 22 22 22
No. of Working Days - - - 250 250 250 250 250
Units Produced and Available For Sale - - - 2,064 3,311 5,406 5,406 5,406

SCHEDULE 3:
COST OF GOODS SOLD

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Cost of Goods Manufactured 2 - - - 921,649 1,259,410 1,716,568 1,816,012 1,913,410
Inventory, Beginning - - - - 65,423 87,616 151,334 159,451
Total Goods Available for Sale - - - 921,649 1,324,833 1,804,184 1,967,346 2,072,860
Inventory, End 76,804 104,951 143,047 151,334 159,451
Cost of Goods Sold - - - 844,845 1,219,882 1,661,136 1,816,012 1,913,410

SCHEDULE 3.1:
GOODS SOLD IN UNITS

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Goods Manufactured (in units) 2.1 - - - 2,064 3,311 5,406 5,406 5,406
Inventory, Beginning - - - - 172 276 451 451
Total Goods Available for Sale - - - 2,064 3,483 5,682 5,857 5,857
Inventory, End 172 276 451 451 451
 128

Goods Sold (in units) - - - 1,892 3,207 5,231 5,406 5,406

SCHEDULE 4:
OTHER OPERATING INCOME

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Gains from changes in fair value
Agricultural Produce
Coffee - - - 312,551 545,527 967,896 1,055,007 1,149,957
Mushroom - - - 1,174,602 1,880,874 3,061,581 3,061,581 3,061,581
Total - - - 1,487,153 2,426,401 4,029,477 4,116,588 4,211,538
Less: Production Costs for Mushrooms - - - 439,355 698,909 1,132,550 1,132,713 1,132,713
Totals - - - 1,047,798 1,727,492 2,896,927 2,983,875 3,078,826

SCHEDULE 5:
SALES DISCOUNT

Sched
2018 2019 2020 2021 2022 2023 2024 2025
Sales 1
- - - 851,430 1,443,266 2,615,732 2,757,078 2,812,220
Less: Trade Discount of 10% for 2021 only
- - - 85,143 - - - -

- - - 766,287 1,443,266 2,615,732 2,757,078 2,812,220

Cash (57% of Total Sales)

- - - 436,783 822,662 1,490,967 1,571,534 1,602,965
Less: Buena Mano Discount
- - - 6,552 - - - -
Less: Cash Discount for Repeat Customers
- - - - 28,793 52,184 55,004 56,104
Less: Quantity Discount for Repeat Customers
- - - - 8,638 15,655 16,501 16,831
 129

Less: Quantity Discount for New Customers

- - - - 6,170 11,182 11,787 12,022
Net Cash Sales
- - - 430,232 779,060 1,411,946 1,488,243 1,518,008

Credit Sales (43% of Total Sales)

- - - 329,503 620,604 1,124,765 1,185,544 1,209,254
Less: Sales Discount for Customers with 7-day term
- - - 3,295 6,206 11,248 11,855 12,093
Less: Sales Discount for Customers with 15-day term
- - - 659 1,241 2,250 2,371 2,419
Less: Sales Discount for Customers with 30-day term
- - - 593 1,117 2,025 2,134 2,177
Net Credit Sales
- - - 324,956 612,040 1,109,243 1,169,183 1,192,567

NET SALES
- - - 755,188 1,391,100 2,521,189 2,657,426 2,710,575

Discount:

Cash Discounts
- - - 6,552 43,601 79,021 83,291 84,957
Credit Discounts
- - - 4,547 8,564 15,522 16,361 16,688
Trade Discounts
- - - 85,143 - - - -
Total Discounts
- - - 96,242 52,165 94,543 99,652 101,645

SCHEDULE 6:
DIRECT MATERIALS

2018 2019 2020 2021 2022 2023 2024 2025

Green Beans (in kgs.) - - - 2,514 4,026 6,553 6,553 6,553
 130

x Market Value 96 105 114 124 136 148 161 175

Total - - - 312,551 545,527 967,896 1,055,007 1,149,957
Less: Costs to Sell - - - - - - - -
Total - - - 312,551 545,527 967,896 1,055,007 1,149,957

SCHEDULE 7:
DIRECT LABOR

Sched
2018 2019 2020 2021 2022 2023 2024 2025

Farmers 292,500 292,500 298,350 298,350 304,317 304,317 310,403 310,403

Roasters - - - 99,450 101,439 101,439 103,468 103,468

Seasonal Laborers - - - 99,450 101,439 101,439 103,468 103,468

Total Direct Labor 292,500 292,500 298,350 497,250 507,195 507,195 517,339 517,339

Employed True Wage 390 390 398 398 406 406 414 414

Employed Farmers/ Roasters

Daily Wage 360 360 367 367 375 375 382 382

Number of Days in Operations 250 250 250 250 250 250 250 250

Annual Wage 90,000 90,000 91,800 91,800 93,636 93,636 95,509 95,509

Number of Farmers 3 3 3 3 3 3 3 3

Number of Roasters - - - 1 1 1 1 1
 131

Total 270,000 270,000 275,400 367,200 374,544 374,544 382,035 382,035

8
Add: 13th Month Pay 22,500 22,500 22,950 30,600 31,212 31,212 31,836 31,836

Total Direct Labor by Employed 292,500 292,500 298,350 397,800 405,756 405,756 413,871 413,871

Less: Mandatory Deductions

40
Pag-IBIG Contribution 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800

36
SSS Contribution 19,890 19,890 19,890 26,520 28,286 28,286 28,286 28,286

38
PhilHealth Contribution 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800

Net Pay to Farmers 265,410 265,410 271,260 361,680 367,870 367,870 375,985 375,985

Seasonal Laborers

Daily Wage 360 360 367 367 375 375 382 382

Number of Days in Operation - - - 50 50 50 50 50

Total Wages - - - 18,360 18,727 18,727 19,102 19,102

Number of Harvesters - - - 5 5 5 5 5

Total - - - 91,800 93,636 93,636 95,509 95,509

Add: 13th Month Pay - - - 7,650 7,803 7,803 7,959 7,959

Net Pay to Laborers - - - 99,450 101,439 101,439 103,468 103,468

SCHEDULE 8:
13TH MONTH
 132

2018 2019 2020 2021 2022 2023 2024 2025

90,000 90,000 91,800 91,800 93,636 93,636 95,509 95,509

Annual Wage of Employees

Divided by: 12 12 12 12 12 12 12 12

7,500 7,500 7,650 7,650 7,803 7,803 7,959 7,959

Monthly Wage

3 3 3 4 4 4 4 4
No. of Workers

22,500 22,500 22,950 30,600 31,212 31,212 31,836 31,836

13th Month Pay of Employees

- - - 18,360 18,727 18,727 19,102 19,102

Annual Wage of Seasonal Laborers

12 12 12 12 12 12 12 12
Divided by:

- - - 1,530 1,561 1,561 1,592 1,592

Wage

5 5 5 5 5 5 5 5
x No. of seasonal laborers

- - - 7,650 7,803 7,803 7,959 7,959

13th Month Pay of Laborers

22,500 22,500 22,950 30,600 31,212 31,212 31,836 31,836

13th Month Pay of Employees

- - - 7,650 7,803 7,803 7,959 7,959

13th Month Pay of Laborers

22,500 22,500 22,950 38,250 39,015 39,015 39,795 39,795

Total 13th Month Pay

SCHEDULE 9:
LABOR COST SUMMARY
 133

2018 2019 2020 2021 2022 2023 2024 2025

Site Construction Farmers 3 - - 3 - - - -
(Capitalizable Cost for PPE) Daily Wage 390 0 0 398 - - - -
Nursery, Farmhouse, and Shed Number of Days 20 - - 10 - - - -
Total Costs 23,400 - - 11,934 - - - -

Site Preparation Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
Immature Trees Number of Days 27 10 - - - - - -
Total Costs 31,590 11,700 - - - - - -

Installation Cost - Planting Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
Immature Trees Number of Days 47 15 0 0 0 0 0 0
Total Costs 54,990 17,550 - - - - - -
Field Requirements - Employed
1. Weed Control Farmers 3 3 3 3 3 3 3 3
(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 25 33 22 18 18 18 18 18
Immature Trees Total Costs 29,250 38,610 26,255 21,481 21,911 21,911 22,349 22,349

2. Fertilizer Application - Soil Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 25 30 25 12 12 12 12 12
Immature Trees Total Costs 29,250 35,100 29,835 14,321 14,607 14,607 14,899 14,899

3. Fertilizer Application - Leaves Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 11 7 7 3 3 3 3 3
Immature Trees Total Costs 12,870 8,190 8,354 3,580 3,652 3,652 3,725 3,725

4. Water Application Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 11 30 30 6 6 6 6 6
Immature Trees Total Costs 12,870 35,100 35,802 7,160 7,304 7,304 7,450 7,450

5. Insecticide Application Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 44 63 40 18 18 18 18 18
 134

Immature Trees Total Costs 51,480 73,710 47,736 21,481 21,911 21,911 22,349 22,349

6. Mulch Application Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 27 13 12 8 8 8 8 8
Immature Trees Total Costs 31,590 15,210 14,321 9,547 9,738 9,738 9,933 9,933

7. Canopy Care Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 4 7 - - - - - -
Immature Trees Total Costs 4,680 8,190 - - - - - -

8. Inspection Farmers 3 3 3 3 3 3 3 3
(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days - 25 50 30 30 30 30 30
Immature Trees Total Costs - 29,250 59,670 35,802 36,518 36,518 37,248 37,248

9. Pruning Farmers 3 3 3 3 3 3 3 3
(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days - 7 5 5 5 5 5 5
Immature Trees Total Costs - 8,190 5,967 5,967 6,086 6,086 6,208 6,208

10. Other Activities Farmers 3 3 3 3 3 3 3 3

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days - - 50 22 22 22 22 22
Total Costs - - 59,670 26,255 26,780 26,780 27,315 27,315

11. Coffee Harvest Farmers 3 3 3 3 3 3 3 3

(Cost of Goods Manufactured) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 50 50 50 50 50
Total Costs - - - 59,670 60,863 60,863 62,081 62,081

12. Coffee Drying Farmers 3 3 3 3 3 3 3 3

(Cost of Goods Manufactured) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 20 20 20 20 20
Total Costs - - - 23,868 24,345 24,345 24,832 24,832

13. Coffee Packaging Farmers 3 3 3 3 3 3 3 3

 135

(Cost of Goods Manufactured) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 48 48 48 48 48
Total Costs - - - 57,283 58,429 58,429 59,597 59,597

14. Roasting Roasters 1 1 1 1 1 1 1 1

(Cost of Goods Manufactured) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 240 240 240 240 240
Total Costs - - - 95,472 97,381 97,381 99,329 99,329

15. Allowance for Slack Workers 3 3 3 4 4 4 4 4

(Capitalizable Cost for PPE) Daily Wage 390 390 398 398 406 406 414 414
(CoGM on 4th Year) Number of Days 9 10 9 10 10 10 10 10
Immature Trees Total Costs 10,530 11,700 10,741 15,912 16,230 16,230 16,555 16,555

Field Requirements - Seasonal

1. Coffee Harvest Workers - - - 5 5 5 5 5
(Cost of Goods Manufactured) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 15 15 15 15 15
Total Costs - - - 5,967 6,086 6,086 6,208 6,208

2. Mushroom Packaging Workers - - - 5 5 5 5 5

(Other Operating Income) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 15 15 15 15 15
Total Costs - - - 5,967 6,086 6,086 6,208 6,208

3. Mushroom Harvest Workers - - - 5 5 5 5 5

(Other Operating Income) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 5 5 5 5 5
Total Costs - - - 1,989 2,029 2,029 2,069 2,069

4. Waste Disposal Workers - - - 5 5 5 5 5

(Repairs and Maintenance) Daily Wage 390 390 398 398 406 406 414 414
Number of Days - - - 15 15 15 15 15
Total Costs - - - 5,967 6,086 6,086 6,208 6,208

Total Capitalizable Cost for PPE 269,100 292,500 298,350 161,507 -

Percentage of Immature Trees 100% 100% 100% 22% - - - -
 136

Allocated to Immature Trees 269,100 292,500 298,350 35,557 - - - -

Allocated to Nursery 11,700 - - - - - - -
Allocated to Farmhouse 11,700 - - - - - - -
Allocated to Storage Shed - - - 11,934 - - - -
Allocated to Cost of Goods - - - 435,836 492,994 492,994 502,853 502,853
Allocated to Other Operating Income - - - 7,956 8,115 8,115 8,277 8,277
Allocated to Repairs and Maintenance - - - 5,967 6,086 6,086 6,208 6,208
Total Direct Labor 292,500 292,500 298,350 497,250 507,195 507,195 517,339 517,339

SCHEDULE 10:
FACTORY OVERHEAD

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Depreciation Expense 11 51,081 51,081 51,081 77,751 84,769 84,769 84,769 84,769
Utilities Expense 16 51,600 53,532 55,541 57,631 59,804 62,065 64,417 66,864
Production Supplies 14 29,224 25,696 22,168 29,866 32,344 59,871 59,871 59,871
Repairs and Maintenance 23 - - - 5,967 6,086 11,086 11,208 11,208
Pag-Ibig Contribution 40 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800
SSS Contribution 36 19,890 19,890 19,890 26,520 28,286 28,286 28,286 28,286
PhilHealth Contribution 38 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800
Total 158,995 157,399 155,880 207,335 220,890 255,678 258,152 260,599

Allocated to Coffee Trees - Immature 158,995 157,399 155,880 34,073 - - - -

Allocated to CoGM - - - 173,261 220,890 255,678 258,152 260,599

Total 158,995 157,399 155,880 207,335 220,890 255,678 258,152 260,599

SCHEDULE 11:
DEPRECIATION EXPENSE - FOH

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Land Improvements 27 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
Farm Equipment
Coffee Huller 30 - - - 2,550 2,550 2,550 2,550 2,550
Coffee Roaster 30 - - - 5,610 5,610 5,610 5,610 5,610
Trees
Mature Coffee Trees 33 - - - 27,816 34,834 34,834 34,834 34,834
Farm Buildings
 137

Farmhouse 31 30,176 30,176 30,176 30,176 30,176 30,176 30,176 30,176

Nursery 34 19,905 19,905 19,905 - - -
Storage Shed 34.1 10,599 10,599 10,599 10,599 10,599
Total 51,081 51,081 51,081 77,751 84,769 84,769 84,769 84,769

SCHEDULE 12:
OPERATING EXPENSES

Sched 2018 2019 2020 2021 2022 2023 2024 2025

General and Administrative Expenses
Delivery Expense - - - 30,000 30,000 30,000 30,000 30,000
Cleaning Supplies Expense 13 1,982 1,982 1,982 1,982 1,982 1,982 1,982 1,982
Permits and Licenses Expense 15 3,550 3,100 3,100 3,100 3,100 3,100 3,100 3,100
Research and Study Cost 7,700 - - - - - - -
Utilities Expense 16 10,200 10,548 10,911 23,170 23,566 23,980 24,411 24,862
Tools Expense 17 2,953 2,953 2,953 2,953 2,953 2,953 2,953 2,953
Insurance Expense 18 56,347 72,251 72,251 72,251 72,251 72,251 72,251 72,251
Depreciation Expense 19 7,837 7,837 7,837 7,837 7,837 - - -
Office Supplies Expense 20 4,179 4,179 4,179 4,179 4,179 4,179 4,179 4,179
Uncollectible Accounts Expense 25 - - - 6,499 12,241 22,185 23,384 23,851
Professional Fees 21 24,000 24,000 24,480 24,480 24,970 24,970 25,469 25,469
Total General and Administrative Expenses 94,747 102,849 103,213 151,971 158,108 160,629 162,259 163,178

Selling Expenses
Advertising Expense 22 200 200 200 200 200 200 200 200
Sample Expense - - - 4,465 3,804 - - -
Total Selling Expenses 200 200 200 4,665 4,004 200 200 200
TOTAL OPERATING EXPENSES 94,947 103,049 103,413 156,636 162,112 160,829 162,459 163,378
 138

SCHEDULE 13:
CLEANING SUPPLIES EXPENSE

2018 2019 2020 2021 2022 2023 2024 2025

Soft Broom 100 100 100 100 100 100 100 100
Broomstick 100 100 100 100 100 100 100 100
Dipper 90 90 90 90 90 90 90 90
Pail 120 120 120 120 120 120 120 120
Floor Mop 300 300 300 300 300 300 300 300
Toilet Brush 100 100 100 100 100 100 100 100
Dust Pan 120 120 120 120 120 120 120 120
Garbage Can (large) 800 800 800 800 800 800 800 800
Detergent Soap 32 32 32 32 32 32 32 32
Hand Soap 120 120 120 120 120 120 120 120
Door Mat 70 70 70 70 70 70 70 70
Rags 30 30 30 30 30 30 30 30
Total 1,982 1,982 1,982 1,982 1,982 1,982 1,982 1,982

SCHEDULE 14:
PRODUCTION SUPPLIES

2018 2019 2020 2021 2022 2023 2024 2025

Fertilizer 28,224 24,696 21,168 17,640 14,112 14,112 14,112 14,112
Pesticides (per gallon) 1,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000
 139

Large Burlap Bags 11,226 17,232 44,759 44,759 44,759

Total 29,224 25,696 22,168 29,866 32,344 59,871 59,871 59,871

SCHEDULE 15:
PERMITS AND LICENSES EXPENSE

2018 2019 2020 2021 2022 2023 2024 2025

Barangay Clearance 50 50 50 50 50 50 50 50
Mayor's Business Permit 200 200 200 200 200 200 200 200
Zoning Certificate 100 100 100 100 100 100 100 100
Electrical Permit 100 - - - - - - -
Building Permit 200 - - - - - - -
Sanitary Permit 100 100 100 100 100 100 100 100
Health Certificate 50 50 50 50 50 50 50 50
Fire Safety Inspection 100 - - - - - - -
SEC Registration 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000
BIR Registration 500 500 500 500 500 500 500 500
Business Permit Notarization 100 100 100 100 100 100 100 100
Documentary Stamp Tax 50 - - - - - - -
Total 3,550 3,100 3,100 3,100 3,100 3,100 3,100 3,100

SCHEDULE 16:
UTILITIES EXPENSE

2018 2019 2020 2021 2022 2023 2024 2025

Factory Overhead:
Electricity (80%) 19,200 20,160 21,168 22,226 23,338 24,505 25,730 27,016
Water (90%) 32,400 33,372 34,373 35,404 36,466 37,560 38,687 39,848
Total 51,600 53,532 55,541 57,631 59,804 62,065 64,417 66,864

General and Administrative

Telecommunications 1,800 1,800 1,800 13,680 13,680 13,680 13,680 13,680
Electricity (20%) 4,800 5,040 5,292 5,557 5,834 6,126 6,432 6,754
Water (10%) 3,600 3,708 3,819 3,934 4,052 4,173 4,299 4,428
Total 10,200 10,548 10,911 23,170 23,566 23,980 24,411 24,862
 140

Total Utilities Expense 61,800 64,080 66,452 80,801 83,370 86,045 88,828 91,726

SCHEDULE 17:
FARM TOOLS EXPENSE

2018 2019 2020 2021 2022 2023 2024 2025

Rake 756 756 756 756 756 756 756 756
Basket 522 522 522 522 522 522 522 522
Coffee Bean Sieve 854 854 854 854 854 854 854 854
Tarpaulin 306 306 306 306 306 306 306 306
Hose 515 515 515 515 515 515 515 515
Total 2,953 2,953 2,953 2,953 2,953 2,953 2,953 2,953

SCHEDULE 18:
INSURANCE EXPENSE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Department of Agriculture Allocated Cost per Tree 80 80 80 80 80 80 80 80
Number of Trees 33 10,062 12,902 12,902 12,902 12,902 12,902 12,902 12,902
DA Allocated Cost 804,960 1,032,160 1,032,160 1,032,160 1,032,160 1,032,160 1,032,160 1,032,160
Premium 7% 7% 7% 7% 7% 7% 7% 7%
Insurance Expense 56,347 72,251 72,251 72,251 72,251 72,251 72,251 72,251

SCHEDULE 19:
DEPRECIATION EXPENSE - SELLING AND ADMINISTRATIVE EXPENSE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Furnitures and Fixtures
Office Table 29 920 920 920 920 920 - - -
 141

Dining Table 29 400 400 400 400 400 - - -

Chairs 29 799 799 799 799 799 - - -
Office Equipment
Computer Set 28 4,840 4,840 4,840 4,840 4,840 - - -
Printer 28 878 878 878 878 878 - - -
Total 7,837 7,837 7,837 7,837 7,837 - - -

SCHEDULE 20.
OFFICE SUPPLIES EXPENSE

2018 2019 2020 2021 2022 2023 2024 2025

Ball pen 30 30 30 30 30 30 30 30
Short Bond paper 145 145 145 145 145 145 145 145
Long Bond paper 175 175 175 175 175 175 175 175
Carbon Paper 47 47 47 47 47 47 47 47
Short Brown Envelope 40 40 40 40 40 40 40 40
Long Brown Envelope 50 50 50 50 50 50 50 50
Short Folder 60 60 60 60 60 60 60 60
Long Folder 70 70 70 70 70 70 70 70
Due Slips 25 25 25 25 25 25 25 25
Calculator 1000 1000 1000 1000 1000 1000 1000 1000
Journal Notebook 24 24 24 24 24 24 24 24
Fastener 29 29 29 29 29 29 29 29
Liquid Eraser 50 50 50 50 50 50 50 50
Logbook 59 59 59 59 59 59 59 59
Marker 68 68 68 68 68 68 68 68
Pencil 21 21 21 21 21 21 21 21
Puncher 75 75 75 75 75 75 75 75
Ledger 25 25 25 25 25 25 25 25
Stapler 15 15 15 15 15 15 15 15
Staple Wire 6 6 6 6 6 6 6 6
Scotch Tape 30 30 30 30 30 30 30 30
Scotch Tape Dispenser 35 35 35 35 35 35 35 35
Scissors 25 25 25 25 25 25 25 25
Cash Box 2000 2000 2000 2000 2000 2000 2000 2000
Receipt Slip 75 75 75 75 75 75 75 75
Total 4,179 4,179 4,179 4,179 4,179 4,179 4,179 4,179
 142

SCHEDULE 21:
PROFESSIONAL FEES

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Bookkeeper F 24,000 24,000 24,480 24,480 24,970 24,970 25,469 25,469

SCHEDULE 22:
ADVERTISING EXPENSES

2018 2019 2020 2021 2022 2023 2024 2025

Brochures 200 200 200 200 200 200 200 200

200 200 200 200 200 200 200 200
Total

SCHEDULE 23:
REPAIRS AND MAINTENANCE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Farm Equipment Maintenance - - - - - 5,000 5,000 5,000
Waste Management - - - 5,967 6,086 6,086 6,208 6,208
Repairs and Maintenance Expense - - - 5,967 6,086 11,086 11,208 11,208

SCHEDULE 24:
ACCOUNTS RECEIVABLE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Accounts Receivable, Beginning - - - - 27,080 51,003 92,437 97,432
Credit Sales 5 - - - 324,956 612,040 1,109,243 1,169,183 1,192,567
Less:Collections
Prior - 27,080 51,003 92,437 97,432
Current 297,876 561,037 1,016,806 1,071,751 1,093,186
Accounts Receivable, End - - - 27,080 51,003 92,437 97,432 99,381
Less: Allowance for Doubtful Accounts 25 - - - 6,499 18,740 40,925 64,308 88,160
Accounts Receivable, net - - - 20,581 32,263 51,512 33,123 11,221

SCHEDULE 25:
ALLOWANCE FOR DOUBTFUL ACCOUNTS
 143

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Net Credit Sales 5 - - - 324,956 612,040 1,109,243 1,169,183 1,192,567
Percentage - - - 2% 2% 2% 2% 2%
Uncollectible Accounts Expense - - - 6,499 12,241 22,185 23,384 23,851
Add: ADA, Beginning Balance - - - - 6,499.12 18,739.92 40,924.78 64,308.44
Allowance for Doubtful Accounts, End - - - 6,499 18,740 40,925 64,308 88,160
SCHEDULE 26:
ROASTED COFFEE FINISHED GOODS INVENTORY

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Current Year Produced 2.1 - - - 2,064 3,311 5,406 5,406 5,406
Add: Beginning Inventory - - - - 172 276 451 451
Total Goods Available For Sale - - - 2,064 3,483 5,682 5,857 5,857
Less: Units Sold
From Beginning Inventory - - - - 172 276 451 451
From Current Year Production - - - 1,892 3,035 4,956 4,956 4,956
Ending Inventory - - - 172 276 451 451 451
x Cost Per Unit - - - 447 380 318 336 354
Cost of Ending Inventory - - - 76,804 104,951 143,047 151,334 159,451

SCHEDULE 27:
PROPERTY, PLANT, AND EQUIPMENT

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Property, Plant, and Equipment
Land F 6,003,000 6,003,000 6,003,000 6,003,000 6,003,000 6,003,000 6,003,000 6,003,000
Land Improvements 27 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Office Equipment 28 28,589 28,589 28,589 28,589 28,589 28,589 28,589 28,589
Furniture and fixtures 29 10,594 10,594 10,594 10,594 10,594 10,594 10,594 10,594
Farm Equipment 30 - - - 81,600 81,600 81,600 81,600 81,600
Farmhouse 31 301,764 301,764 301,764 301,764 301,764 301,764 301,764 301,764
Nursery 34 59,714 59,714 59,714 - - - - -
Storage Shed 34.1 - - - 105,987 105,987 105,987 105,987 105,987
Immature Trees 32 460,319 1,064,799 262,631 - - - - -
 144

Mature Trees 33 - - 1,390,811 1,741,711 1,741,711 1,741,711 1,741,711 1,741,711

Total PPE 6,873,980 7,478,459 8,067,102 8,283,245 8,283,245 8,283,245 8,283,245 8,283,245

Accumulated Depreciation
Land Improvements 27 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Office Equipment 28 5,718 11,436 17,153 22,871 28,589 28,589 28,589 28,589
Furniture and fixtures 29 2,119 4,238 6,356 8,475 10,594 10,594 10,594 10,594
Farm Equipment 30 - - - 8,160 16,320 24,480 32,640 40,800
Farmhouse 31 30,176 60,353 90,529 120,705 150,882 181,058 211,234 241,411
Nursery 34 19,905 39,809 59,714 - - - - -
Storage Shed 34.1 - - - 10,599 21,197 31,796 42,395 52,994
Mature Trees 33 - - - 27,816 62,650 97,485 132,319 167,153
Total Accumulated Depreciation 58,918 117,835 176,753 202,627 295,233 380,002 464,771 549,540

Carrying Amount
Total PPE 6,873,980 7,478,459 8,067,102 8,283,245 8,283,245 8,283,245 8,283,245 8,283,245
Total Accumulated Depreciation 58,918 117,835 176,753 202,627 295,233 380,002 464,771 549,540
Total PPE, net 6,815,062 7,360,624 7,890,350 8,080,618 7,988,012 7,903,243 7,818,474 7,733,705

SCHEDULE 27.1:
LAND IMPROVEMENTS

2018 2019 2020 2021 2022 2023 2024 2025

Safety Fence 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000
Accumulated Depreciation 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Carrying Amount 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000

SCHEDULE 28:
OFFICE EQUIPMENT

2018 2019 2020 2021 2022 2023 2024 2025

 145

Computer Set 24,199 24,199 24,199 24,199 24,199 24,199 24,199 24,199
Printer 4,390 4,390 4,390 4,390 4,390 4,390 4,390 4,390
Total 28,589 28,589 28,589 28,589 28,589 28,589 28,589 28,589

Accumulated Depreciation:
Computer set 4,840 9,680 14,519 19,359 24,199 24,199 24,199 24,199
Printer 878 1,756 2,634 3,512 4,390 4,390 4,390 4,390
Total Accum. Dep'n 5,718 11,436 17,153 22,871 28,589 28,589 28,589 28,589

SCHEDULE 29:
FURNITURES AND FIXTURES

2018 2019 2020 2021 2022 2023 2024 2025

Office Table 4,600 4,600 4,600 4,600 4,600 4,600 4,600 4,600
Dining Table 1,999 1,999 1,999 1,999 1,999 1,999 1,999 1,999
Chairs 3,995 3,995 3,995 3,995 3,995 3,995 3,995 3,995
Total 10,594 10,594 10,594 10,594 10,594 10,594 10,594 10,594

Accumulated Depreciation
Office Table 920 1,840 2,760 3,680 4,600 4,600 4,600 4,600
Dining Table 400 800 1,199 1,599 1,999 1,999 1,999 1,999
Chairs 799 1,598 2,397 3,196 3,995 3,995 3,995 3,995
Total 2,119 4,238 6,356 8,475 10,594 10,594 10,594 10,594

SCHEDULE 30:
FARM EQUIPMENT

2018 2019 2020 2021 2022 2023 2024 2025

Coffee Huller - - - 25,500 25,500 25,500 25,500 25,500
Coffee Roaster - - - 56,100 56,100 56,100 56,100 56,100
 146

Total - - - 81,600 81,600 81,600 81,600 81,600

Accumulated Depreciation
Coffee Huller - - - 2,550 5,100 7,650 10,200 12,750
Coffee Roaster - - - 5,610 11,220 16,830 22,440 28,050
Total - - - 8,160 16,320 24,480 32,640 40,800

SCHEDULE 31:
FARMHOUSE

2018 2019 2020 2021 2022 2023 2024 2025

Farmhouse 301,764 301,764 301,764 301,764 301,764 301,764 301,764 301,764
Accumulated Depreciation 30,176 60,353 90,529 120,705 150,882 181,058 211,234 241,411
Carrying Amount 271,587 241,411 211,234 181,058 150,882 120,705 90,529 60,353

SCHEDULE 32:
CONSTRUCTION IN PROGRESS - IMMATURE COFFEE TREES
Disclose: Uses capitalising costs

Sched 2018 2019 2020 2021 2022 2023 2024 2025

DIRECT MATERIALS
Seed Cost per Kilogram (approx. 3000 seeds) 600 600 600 600 - - - -
13,416 seeds x (1 kg / 3000 seeds) 5 - - - -
03,786 seeds x (1 kg / 3000 seeds) 2 - - - -
Total Seed Cost 3,000 1,200 - - - - - -
Fertilizer 28,224 24,696 21,168 17,640 - - - -
Insecticide 1,000 1,000 1,000 1,000 - - - -
 147

Total Direct Materials 32,224 26,896 22,168 18,640 - - - -

DIRECT LABOR
Site Preparation 31,590 11,700 - - - - - -
Installation Cost - Planting 54,990 17,550 - - - - - -
Field Requirements 182,520 263,250 298,350 35,557
Allocated to Trees (Total * Immature Trees/All Trees) 269,100 292,500 298,350 35,557 - - - -

MANUFACTURING OVERHEAD
Farmhouse Depreciation 11 30,176 30,176 30,176 30,176
Nursery Depreciation 11 19,905 19,905 19,905 -
Land Improvement Depreciation 1,000 1,000 1,000 1,000
Utilities Expense 16 51,600 53,532 55,541 57,631
Production Supplies 14 29,224 25,696 22,168 29,866
Pag-Ibig Contribution 40 3,600 3,600 3,600 4,800
SSS Contribution 36 19,890 19,890 19,890 26,520
PhilHealth Coontribution 38 3,600 3,600 3,600 4,800

Total Manufacturing Overhead 158,995 157,399 155,880 154,793

Allocated to Trees (Total * Immature Trees/All Trees) 158,995 157,399 155,880 34,073

Interest Costs during Construction - 127,685 112,245

Government Grants

Total Capitalizable Costs for Coffee Trees 460,319 604,480 588,643 88,270
Number of Coffee Trees planted in 2018 10,062 10,062 10,062 -
Cost per Coffee Tree - 2018 46 93 138 -
Carrying Amount for Coffee Trees - 2018 460,319 931,740 1,390,811 -

Number of Coffee Trees planted in 2019 - 2,840 2,840 2,840

Cost per Coffee Tree - 2019 - 47 92 124
Carrying Amount for Coffee Trees - 2019 - 133,059 262,631 350,901
 148

Carrying Amount for Immature Trees, beginning 460,319 1,064,799 1,653,442 350,901
Moved to Mature Trees 1,390,811 350,901
Carrying Amount for Immature Trees, end 460,319 1,064,799 262,631 -

(*) First Year only

(**) Second Year only
(***) Third Year only
(#) In Perpetuity

SCHEDULE 33:
MATURE COFFEE TREES - PPE

2018 2019 2020 2021 2022 2023 2024 2025

Number of Mature Trees
planted in 2018 - - 10,062 10,062 10,062 10,062 10,062 10,062
planted in 2019 - - - 2,840 2,840 2,840 2,840 2,840
Total Number of Mature Trees - - 10,062 12,902 12,902 12,902 12,902 12,902

Mature Trees
planted in 2018 - - 1,390,811 1,390,811 1,390,811 1,390,811 1,390,811 1,390,811
planted in 2019 - - - 350,901 350,901 350,901 350,901 350,901
Mature Trees - - 1,390,811 1,741,711 1,741,711 1,741,711 1,741,711 1,741,711

Accumulated Depreciation
planted in 2018 - - - 27,816 55,632 83,449 111,265 139,081
planted in 2019 - - - - 7,018 14,036 21,054 28,072
Total Accumulated Depreciation, Mature Trees - - - 27,816 62,650 97,485 132,319 167,153

SCHEDULE 34:
NURSERY BED

2018 2019 2020 2021 2022 2023 2024 2025

Nursery 59,714 59,714 59,714 - - - - -
Accumulated Depreciation 19,905 39,809 59,714 - - - - -
Carrying Amount 39,809 19,905 - - - - - -
 149

SCHEDULE 34.1:
STORAGE SHED

2018 2019 2020 2021 2022 2023 2024 2025

Storage Shed - - - 105,987 105,987 105,987 105,987 105,987
Accumulated Depreciation - - - 10,599 21,197 31,796 42,395 52,994
Carrying Amount - - - 95,388 84,790 74,191 63,592 52,994

SCHEDULE 35:
TOTAL ACCRUALS

Schedule 2018 2019 2020 2021 2022 2023 2024 2025

Accrued SSS Contribution 37 2,475 2,475 2,475 3,300 3,520 3,520 3,520 3,520
Accrued PhilHealth Contribution 39 825 825 825 1,100 1,100 1,100 1,100 1,100
Accrued Pag-ibig Contribution 41 600 600 600 800 800 800 800 800
Accrued Utilities 44 5,150 5,179 5,209 6,231 6,264 6,298 6,334 6,372
Accrued Income Tax Payable 43 (2,374) (2,576) (2,585) 30,256 124,171 264,826 271,027 275,974
Accrued Withholding Tax Payable 53 200 200 204 5,069 9,866 20,806 21,292 21,677
Total Accrued Expenses 6,876 6,703 6,728 46,756 145,721 297,350 304,074 309,443

SCHEDULE 36:
SSS CONTRIBUTION
Monthly Contribution Annual Contribution
Year Monthly Salary Annual Salary Employer Employee Employer Employee
201
Per Worker
8 7,500 90,000 553 273 6,630 3,270
x No. of Workers 3 3 3 3 3 3
Total 22,500 270,000 1,658 818 19,890 9,810

201
Per Worker
9 7,500 90,000 553 273 6,630 3,270
x No. of Workers 3 3 3 3 3 3
Total 22,500 270,000 1,658 818 19,890 9,810

202
Per Worker
0 7,650 91,800 553 273 6,630 3,270
 150

x No. of Workers 3 3 3 3 3 3
Total 22,950 275,400 1,658 818 19,890 9,810

202
Per Worker
1 7,650 91,800 553 273 6,630 3,270
x No. of Workers 4 4 4 4 4 4
Total 30,600 367,200 2,210 1,090 26,520 13,080

202
Per Worker
2 7,803 93,636 589 291 7,072 3,488
x No. of Workers 4 4 4 4 4 4
Total 31,212 374,544 2,357 1,163 28,286 13,954

202
Per Worker
3 7,803 93,636 589 291 7,072 3,488
x No. of Workers 4 4 4 4 4 4
Total 31,212 374,544 2,357 1,163 28,286 13,954

202
Per Worker
4 7,959 95,509 589 291 7,072 3,488
x No. of Workers 4 4 4 4 4 4
Total 31,836 382,035 2,357 1,163 28,286 13,954

202
Per Worker
5 7,959 95,509 589 291 7,072 3,488
x No. of Workers 4 4 4 4 4 4
Total 31,836 382,035 2,357 1,163 28,286 13,954

SCHEDULE 37:
ACCRUED SSS PAYABLE

Schedul
2018 2019 2020 2021 2022 2023 2024 2025
e
Accrued SSS Contribution Beg. - 2,475 2,475 2,475 3,300 3,520 3,520 3,520
Add: SSS Contribution
Employer's share 36 19,890 19,890 19,890 26,520 28,286 28,286 28,286 28,286
Employee's share 36 9,810 9,810 9,810 13,080 13,954 13,954 13,954 13,954
Total SSS Contribution Payable 29,700 32,175 32,175 42,075 45,540 45,760 45,760 45,760
Less: Payments
Prior - 2,475 2,475 2,475 3,300 3,520 3,520 3,520
 151

Current 27,225 27,225 27,225 36,300 38,720 38,720 38,720 38,720

Total 27,225 29,700 29,700 38,775 42,020 42,240 42,240 42,240
Accrued SSS Contribution End. 2,475 2,475 2,475 3,300 3,520 3,520 3,520 3,520

SCHEDULE 38:
PHILHEALTH CONTRIBUTION

Monthly Contribution Annual Contribution

Year Monthly Salary Annual Salary Employer Employee Employer Employee
2018 Per Worker 7,500 90,000 138 138 1,650 1,650
x No. of Workers 3 3 3 3 3 3
Total 22,500 270,000 413 413 4,950 4,950

2019 Per Worker 7,500 90,000 138 138 1,650 1,650

x No. of Workers 3 3 3 3 3 3
Total 22,500 270,000 413 413 4,950 4,950

2020 Per Worker 7,650 91,800 138 138 1,650 1,650

x No. of Workers 3 3 3 3 3 3
Total 22,950 275,400 413 413 4,950 4,950

2021 Per Worker 7,650 91,800 138 138 1,650 1,650

x No. of Workers 4 4 4 4 4 4
Total 30,600 367,200 550 550 6,600 6,600

2022 Per Worker 7,803 93,636 138 138 1,650 1,650

x No. of Workers 4 4 4 4 4 4
Total 31,212 374,544 550 550 6,600 6,600

2023 Per Worker 7,803 93,636 138 138 1,650 1,650

x No. of Workers 4 4 4 4 4 4
Total 31,212 374,544 550 550 6,600 6,600

2024 Per Worker 7,959 95,509 138 138 1,650 1,650

x No. of Workers 4 4 4 4 4 4
Total 31,836 382,035 550 550 6,600 6,600
 152

2025 Per Worker 7,959 95,509 138 138 1,650 1,650

x No. of Workers 4 4 4 4 4 4
Total 31,836 382,035 550 550 6,600 6,600

SCHEDULE 36:
ACCRUED PHILHEALTH CONTRIBUTION
Sched 2018 2019 2020 2021 2022 2023 2024 2025
Accrued PhilHealth Contribution Beg. 0 825 825 825 1,100 1,100 1,100 1,100
Add: PhilHealth Contribution
Employer's share 38 4,950 4,950 4,950 6,600 6,600 6,600 6,600 6,600
Employee's share 38 4,950 4,950 4,950 6,600 6,600 6,600 6,600 6,600
Total PhilHealth Contribution Payable 9,900 10,725 10,725 14,025 14,300 14,300 14,300 14,300
Less: Payments
Prior - 825 825 825 1,100 1,100 1,100 1,100
Current 9,075 9,075 9,075 12,100 12,100 12,100 12,100 12,100
Total 9,075 9,900 9,900 12,925 13,200 13,200 13,200 13,200
Accrued PhilHealth Contribution End 825 825 825 1,100 1,100 1,100 1,100 1,100

SCHEDULE 40:
PAG-IBIG CONTRIBUTION
Monthly Contribution Annual Contribution
Year Monthly Salary Annual Salary Employer Employee Employer Employee
2018 Per Farmer 7,500 90,000 100 100 1,200 1,200
x No. of Farmers 3 3 3 3 3 3
Total 22,500 270,000 300 300 3,600 3,600

2019 Per Farmer 7,500 90,000 100 100 1,200 1,200

x No. of Farmers 3 3 3 3 3 3
Total 22,500 270,000 300 300 3,600 3,600
 153

2020 Per Farmer 7,650 91,800 100 100 1,200 1,200

x No. of Farmers 3 3 3 3 3 3
Total 22,950 275,400 300 300 3,600 3,600

2021 Per Farmer 7,650 91,800 100 100 1,200 1,200

x No. of Farmers 4 4 4 4 4 4
Total 30,600 367,200 400 400 4,800 4,800

2022 Per Farmer 7,803 93,636 100 100 1,200 1,200

x No. of Farmers 4 4 4 4 4 4
Total 31,212 374,544 400 400 4,800 4,800

2023 Per Farmer 7,803 93,636 100 100 1,200 1,200

x No. of Farmers 4 4 4 4 4 4
Total 31,212 374,544 400 400 4,800 4,800

2024 Per Farmer 7,959 95,509 100 100 1,200 1,200

x No. of Farmers 4 4 4 4 4 4
Total 31,836 382,035 400 400 4,800 4,800

2025 Per Farmer 7,959 95,509 100 100 1,200 1,200

x No. of Farmers 4 4 4 4 4 4
Total 31,836 382,035 400 400 4,800 4,800

SCHEDULE 41:
ACCRUED PAG-IBIG CONTRIBUTION

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Accrued PAG-IBIG Contribution Beg. - 600 600 600 800 800 800 800
Add: PAG-IBIG Contribution
Employer's share 40 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800
Employee's share 40 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800
Total PAG-IBIG Contribution Payable 7,200 7,800 7,800 10,200 10,400 10,400 10,400 10,400
Less: Payments
Prior - 600 600 600 800 800 800 800
Current 6,600 6,600 6,600 8,800 8,800 8,800 8,800 8,800
Total 6,600 7,200 7,200 9,400 9,600 9,600 9,600 9,600
Accrued PAG-IBIG Contribution End. 600 600 600 800 800 800 800 800
 154

SCHEDULE 42:
ACCRUED INCOME TAX PAYABLE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

50 1,103,89
Income Tax (28,484) (30,915) (31,024) 121,024 496,685 1,059,303 1,084,109
7
Beginning - (2,374) (2,576) (2,585) 30,256 124,171 264,826 271,027
1,374,92
Total Tncome Tax Expense (28,484) (33,288) (33,600) 118,439 526,941 1,183,475 1,348,934
4
Less: Payment
Prior - (2,374) (2,576) (2,585) 30,256 124,171 264,826 271,027
Current (26,111) (28,339) (28,438) 90,768 372,513 794,478 813,081 827,923
Accrued Income Tax Payable (2,374) (2,576) (2,585) 30,256 124,171 264,826 271,027 275,974

SCHEDULE 43:
ACCRUED UTILITIES EXPENSE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Utilities Expense 16 61,800 62,148 62,511 74,770 75,166 75,580 76,011 76,462
Beginning - 5,150 5,179 5,209 6,231 6,264 6,298 6,334
Total Utilities Expense 61,800 67,298 67,690 79,980 81,397 81,843 82,309 82,796
Less: Payment
Prior - 5,150 5,179 5,209 6,231 6,264 6,298 6,334
Current 56,650 56,969 57,302 68,540 68,902 69,281 69,677 70,090
Accrued Utilities Expense 5,150 5,179 5,209 6,231 6,264 6,298 6,334 6,372

SCHEDULE 44:
LOANS PAYABLE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Loans from 2019 - 1,500,000 1,312,500 1,125,000 937,500 750,000 562,500 375,000
Loans from 2020 - - 700,000 600,000 500,000 400,000 300,000 200,000
Payment on loans from 2019 - (187,500) (187,500) (187,500) (187,500) (187,500) (187,500) (187,500)
Payment on loans from 2020 - - (100,000) (100,000) (100,000) (100,000) (100,000) (100,000)
Total Loans - 1,312,500 1,725,000 1,437,500 1,150,000 862,500 575,000 287,500

Current Portion of Loans - 187,500 287,500 287,500 287,500 287,500 287,500 287,500
Discount Amortization for 2019 Loans - 13,807 12,306 10,671 8,889 6,947 4,832 2,363
 155

Discount Amortization for 2020 Loans - - 7,410 6,446 5,393 4,244 2,990 222
Total Current Portion of Loans - 173,693 267,783 270,383 273,218 276,308 279,678 284,915

Noncurrent Portion of Loans - 1,125,000 1,437,500 1,150,000 862,500 575,000 287,500 -

Discount Remaining for 2019 Loans - 46,008 33,702 23,031 14,142 7,194 2,363 -
Discount Remaining for 2020 Loans - - 19,295 12,850 7,456 3,212 222 -
Total Noncurrent Portion of Loans - 1,078,992 1,384,503 1,114,120 840,902 564,593 284,915 -

Discount, beginning -
From 2019 59,815
From 2020 26,706
Discount, end 59,815

Schedule : Interest Expense

Interest from 2019 46 - 127,685 112,245 96,681 80,983 65,139 49,135 32,957
Interest from 2020 47 - - 60,794 52,410 43,946 35,393 26,744 17,990
Total Interest Expense - 127,685 112,245 96,681 80,983 65,139 49,135 32,957

SCHEDULE 46:
TOTAL FIXED COST

Factory Overhead Sched 2018 2019 2020 2021 2022 2023 2024 2025
Depreciation Expense 11 51,081 51,081 51,081 77,751 84,769 84,769 84,769 84,769
Utilities Expense 16 51,600 53,532 55,541 57,631 59,804 62,065 64,417 66,864
Production Supplies 14 29,224 25,696 22,168 29,866 32,344 59,871 59,871 59,871
Repairs and Maintenance 23 - - - 5,967 6,086 11,086 11,208 11,208
Pag-Ibig Contribution 40 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800
SSS Contribution 38 19,890 19,890 19,890 26,520 28,286 28,286 28,286 28,286
PhilHealth Contribution 3,600 3,600 3,600 4,800 4,800 4,800 4,800 4,800
Total Factory Overhead 158,995 157,399 155,880 207,335 220,890 255,678 258,152 260,599

General and Administrative Expenses

Delivery Expense - - - 30,000 30,000 30,000 30,000 30,000
Cleaning Supplies Expense 13 1,982 1,982 1,982 1,982 1,982 1,982 1,982 1,982
Permits and Licenses Expense 15 3,550 3,100 3,100 3,100 3,100 3,100 3,100 3,100
Research and Study Cost 7,700 - - - - - - -
Utilities Expense 16 10,200 10,548 10,911 23,170 23,566 23,980 24,411 24,862
 156

Tools Expense 17 2,953 2,953 2,953 2,953 2,953 2,953 2,953 2,953
Insurance Expense 18 56,347 72,251 72,251 72,251 72,251 72,251 72,251 72,251
Depreciation Expense 19 7,837 7,837 7,837 7,837 7,837 - - -
Office Supplies Expense 40 4,179 4,179 4,179 4,179 4,179 4,179 4,179 4,179
Professional Fees 24,000 24,000 24,480 24,480 24,970 24,970 25,469 25,469
Total General and Administrative Expenses 118,747 126,849 127,693 169,952 170,837 163,414 164,345 164,795

Selling Expenses
Advertising Expense 22 200 200 200 200 200 200 200 200.00
Sample Expense - - - 4,465 3,804 - - -
Total Selling Expenses 200 200 200 4,665 4,004 200 200 200
TOTAL FIXED COST 277,942 284,448 283,773 381,951 395,730 419,292 422,697 425,594

SCHEDULE 47:
TOTAL VARIABLE COST AND VARIABLE COST PER UNIT

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Direct Materials 6 - - - 312,551 545,527 967,896 1,055,007 1,149,957
Uncollectible Accounts Expense 25 - - - 6,499 12,241 22,185 23,384 23,851
Total Variable Cost - - - 319,050 557,768 990,081 1,078,390 1,173,808
Units Produced (per kilo) 2.1 - - - 2,064 3,311 5,406 5,406 5,406
Variable Cost per Kilo, net of 3 % Tax - - - 154.57 168.45 183.14 199.48 217.13
Percentage Tax - - - 4.64 5.05 5.49 5.98 6.51
Total Variable Cost per kilo - - - 159.21 173.50 188.64 205.46 223.64

SCHEDULE 48:
INCOME TAX

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Taxable Net Income IS (94,947) (103,049) (103,413) 704,823 1,655,615 3,531,011 3,613,695 3,679,656
Multiply by: RCIT Rate 30% 30% 30% 30% 30% 30% 30% 30%
Regular Income Tax (NOLCO) (28,484) (30,915) (31,024) 211,447 496,685 1,059,303 1,084,109 1,103,897
Less: Net Operating Loss Carry Over 90,423 - - - -
Income Tax Expense (Income Tax Benefit) (28,484) (30,915) (31,024) 121,024 496,685 1,059,303 1,084,109 1,103,897
 157

Total Gross Income IS - - - - 1,898,711 3,756,979 3,825,289 3,875,991

Multiply by: MCIT Rate 2% 2% 2% 2% 2% 2% 2% 2%
Minimum Corporate Income Tax - - - - 37,974 75,140 76,506 77,520

Higher of RCIT and MCIT (28,484) (30,915) (31,024) 121,024 496,685 1,059,303 1,084,109 1,103,897

SCHEDULE 49:
DEFERRED TAX ASSETS

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Net Operating Loss Carry-Over Application
From 2018 (28,484)
From 2019 (30,915)
From 2020 (31,024) -
Applied to Income Tax Payable 90,423 -

Net Operating Loss Carry-Over Balance

From 2018 (28,484) (28,484) (28,484) - - - - -
From 2019 - (30,915) (30,915) - - - - -
From 2020 - - (31,024) - - - - -
Total Deferred Tax Assets 28,484 59,399 90,423 - - - - -

SCHEDULE 50:
ACCRUED WITHHOLDING TAX PAYABLE

Sched 2018 2019 2020 2021 2022 2023 2024 2025

Professional Fees 21 24,000 24,000 24,480 24,480 24,970 24,970 25,469 25,469
Withholding Tax Rate 10% 10% 10% 10% 10% 10% 10% 10%
Withholding Tax on Professionals 2,400 2,400 2,448 2,448 2,497 2,497 2,547 2,547

Partner's Share in Net Income

M. Partner 233,520 463,572 988,683 1,011,835 1,030,304
S. Partner 350,279 695,358 1,483,025 1,517,752 1,545,456
Total Share in Net Income 583,799 1,158,931 2,471,708 2,529,587 2,575,760
Withholding Tax Rate 10% 10% 10% 10% 10% 10% 10% 10%
 158

Withholding Tax on Distributive Share - - - 58,380 115,893 247,171 252,959 257,576

Total Withholding Tax Due 16 2,400 2,400 2,448 60,828 118,390 249,668 255,506 260,123
Beginning - 200 200 204 5,069 9,866 20,806 21,292
Total Withholding Tax Expense 2,400 2,600 2,648 61,032 123,459 259,534 276,311 281,415
Less: Payment
Prior - 200 200 204 5,069 9,866 20,806 21,292
Current 2,200 2,200 2,244 55,759 108,524 228,862 234,213 238,446
Accrued Tax Payable 200 200 204 5,069 9,866 20,806 21,292 21,677
 159

FINANCIAL STATEMENT ANALYSIS

Financial Statements are a collection of reports about the financial

results, financial condition, and cash flows of the entity. It is useful because

they determine the ability of a business to generate cash and the sources and

uses of it. Another importance of financial statements is that they are used to

derive financial ratios that can indicate the condition of the business

Financial Statement Analysis is the process of evaluating the financial

aspect of trades to determine their performance and suitability. It involves

gaining an understanding of an entity's monetary situation by reviewing its

financial statements. It is an operative device for a variety of statement users

having different objectives in learning about the fiscal conditions of the entity.

Current Ratio

Current ratio indicates company’s ability to meet short-term debt

obligations. It measures whether or not a firm has enough resources to pay its

debts over the next twelve months.

CURRENT RATIO
2018 2019 2020 2021 2022 2023 2024 2025
Current Assets 109,867 713,767 480,256 736,453 537,215 594,560 584,458 570,672
Current Liabilities 6,876 180,395 274,511 317,139 418,939 573,658 583,752 594,358
Current Ratio 15.98 3.96 1.75 2.32 1.28 1.04 1.00 0.96

As seen in the table above, the entity started with a high current ratio,

but through the years, it gradually decreased to 1 which is a good indication.

Having a too high working capital proportion would draw attention to the
 160

company’s mismanagement of its current assets. In this case, however, the

entity’s current assets are sufficient to pay its currently mature liabilities.

Quick Ratio

Quick ratio measures the current short-term liquidity and position of the

company without relying on its inventories. It uses accounts that are

effortlessly convertible to cash making it a good indicator of the entity’s

liquidity.

QUICK RATIO
2018 2019 2020 2021 2022 2023 2024 2025
Quick Assets 109,867 713,767 480,256 659,649 432,264 451,513 433,124 411,222
Current Liabilities 6,876 180,395 274,511 317,139 418,939 573,658 583,752 594,358
Quick Ratio 15.98 3.96 1.75 2.08 1.03 0.79 0.74 0.69

The calculations above show that even though the entity already

excludes the inventory account and only includes readily convertible-to-cash

accounts, the quick ratio still ended up being decreasing just like the current

ratio. Nonetheless, this does not necessarily mean it is going into bankruptcy.

A too high relation between the quick assets and current liabilities just like

what happened in the first year might have idle cash or too many receivables,

but to the entity’s case, the operations need more liquid assets.

Finished Goods Inventory Turnover

 161

The Finished Goods Inventory Turnover measures the number of times

the inventory is sold or used in a period. The turnover indicates how quick the

company converts their stock list into sales.

FINISHED GOODS INVENTORY TURNOVER

2018 2019 2020 2021 2022 2023 2024 2025
Cost of Goods Sold - - - 844,845 1,219,882 1,661,136 1,816,012 1,913,410
Average FG Inventory - - - 76,804 90,877 123,999 147,191 155,393
FG Turnover - - - 11 13 13 12 12

Average FG Inventory:
Beginning Balance - - - - 76,804 104,951 143,047 151,334
Ending Balance - - - 76,804 104,951 143,047 151,334 159,451
Total - - - 76,804 181,755 247,998 294,382 310,785
Divided by - - - 1 2 2 2 2
Average FG Inventory - - - 76,804 90,877 123,999 147,191 155,393

The Finished Goods Inventory Turnover shows that on the first year of

normal operations, the entity was able to convert their inventory 11 times

which makes it favorable to the management knowing it was only their first

year of harvest and they already transformed many of their supplies to sales.

Although the trend was decreasing, it somehow made the turnover stable

which is a good indicator because it will help them project the conversion of

their inventory into a sale.

Age of Finished Goods Inventory

Age of Finished Goods Inventory is the period an inventory stays

in the warehouse.
 162

2018 2019 2020 2021 2022 2023 2024 2025

Number of Days - - - 360 360 360 360 360
FG Inventory Turnover - - - 11 13 13 12 12
Age of FG Inventory - - - 33 27 27 29 29

Since the commodity has a limited shelf life, the entity must be vigilant

as to the period the inventory stays in the warehouse. According to the

calculations, the company managed to sell its stash at a time which is lesser

than the 90-day shelf life of the commodity. The short inventory age brings a

positive impact on the company’s inventory account.

Accounts Receivable Turnover

Accounts Receivable Turnover measures the number of times a

company can collect its receivable.

ACCOUNTS RECEIVABLE TURNOVER

2018 2019 2020 2021 2022 2023 2024 2025
Net Credit Sales - - - 324,956 612,040 1,109,243 1,169,183 1,192,567
Average Accounts
Receivable - - - 27,080 39,042 71,720 94,934 98,406
Accounts Receivable
Turnover - - - 12 16 15 12 12

Average Accounts
Receivable:
Beginning Balance - - - - 27,080 51,003 92,437 97,432
Ending Balance - - - 27,080 51,003 92,437 97,432 99,381
Total - - - 27,080 78,083 143,440 189,869 196,812
Divided by - - - 1 2 2 2 2
Average Receivables - - - 27,080 39,042 71,720 94,934 98,406
 163

Although the entity has a decreasing receivable turnover, they still

manage to have satisfactory results enough to cover the company’s

operations. However, they should not take this lightly because a decreasing

turnover is nevertheless alarming. They should reassess their credit policies to

ensure the timely collection.

Age of Accounts Receivable

Age of Accounts Receivable is the number of days a receivable stays a

receivable until collected

AGE OF FINISHED GOODS INVENTORY

2018 2019 2020 2021 2022 2023 2024 2025
Number of Days - - - 360 360 360 360 360
Accounts Receivable
Turnover - - - 12 16 15 12 12
Age of Accounts
Receivable - - - 30 23 23 29 30

The computation manifests an ideal period of converting receivables to

cash. The entity can collect its receivable within its credit term of 30 days.

However, the firm should improve their accounts receivable period by

increasing their accounts receivable turnover. The company must not be

complacent that they have at least a receivable period equal to their credit

term, they should aim for a lower period if possible.

Return on Equity

Return on equity is the amount of net income returned as a percentage

of shareholders’ equity. It measures the entity's profitability by revealing the

amount of profit an entity generates from shareholders’ investment.

RETURN ON EQUITY
 164

2018 2019 2020 2021 2022 2023 2024 2025

Net Income
(Loss) (66,463) (72,135) (72,389) 583,799 1,158,931 2,471,708 2,529,587 2,575,760

Average Equity 6,946,537 6,910,470 6,838,208 7,093,913 7,325,600 7,312,469 7,446,908 7,622,142
Return on
Equity -1% -1% -1% 8% 16% 34% 34% 34%

Average Equity:
Beginning
Balance 0 6,946,537 6,874,402 6,802,014 7,385,813 7,265,386 7,359,551 7,534,265

Ending Balance 6,946,537 6,874,402 6,802,014 7,385,813 7,265,386 7,359,551 7,534,265 7,710,019

14,187,82 14,651,19 14,624,93 14,893,81 15,244,28

Total 6,946,537 13,820,939 13,676,416 6 9 8 7 4
Divided by 1 2 2 2 2 2 2 2

Average Equity 6,946,537 6,910,470 6,838,208 7,093,913 7,325,600 7,312,469 7,446,908 7,622,142

Since the company has negative income it also yields a negative ROE,

but this does not mean that the entity is performing below par because not all

firms with negative ROEs are poor investments. The project has an increasing

ROE even though it started as negative and a rising Return on Equity (ROE)

means that the business is increasing its ability to generate profit without

needing as much capital.

Operating Margin Ratio

Operating Margin Ratio examines the relationship between sales and

management-controlled costs.

OPERATING MARGIN RATIO

2018 2019 2020 2021 2022 2023 2024 2025
Net
Operating
Income 1,525,21 3,264,98 3,332,43 3,382,22
(Loss) (118,947) (127,049) (127,893) 577,702 7 8 9 2

1,391,10 2,521,18 2,657,42 2,710,57

Net Sales - - - 671,278 0 9 6 5
 165

Operating
Margin
Ratio - - - 86% 110% 130% 125% 125%

The entity’s high operating margin ratio is indicative of the fact that

more proportion of revenue is converted to operating income. There is a

higher operating margin ratio because the firm was able to manage its overall

cost effectively. An increase in operating margin ratio overtime results to

improving profitability. Aside from this, the business should also make a

comparison of their own operating profit margin ratio to the average operating

profit margin of the industry.

Total Asset Turnover

Total Asset Turnover measures how efficiently a company uses its total

assets to generate revenues.

TOTAL ASSET TURNOVER RATIO

2018 2019 2020 2021 2022 2023 2024 2025

1,391,10 2,521,18 2,657,42 2,710,57

Net Sales - - - 671,278 0 9 6 5
Average
Total 8,257,39 8,504,1 8,569,48 8,528,15 8,464,33 8,364,94
Assets 6,938,562 7,520,452 5 21 8 1 1 6
Total Asset
Turnover
Ratio 0% 0% 0% 8% 16% 30% 31% 32%

                 
Average
Total
Assets:

Beginning 8,102,34 8,412,4 8,595,79 8,543,18 8,513,11 8,415,54

Balance - 6,938,562 1 48 3 3 8 4

Ending 8,412,44 8,595,7 8,543,18 8,513,11 8,415,54 8,314,34

Balance 6,938,562 8,102,341 8 93 3 8 4 8

16,514,7 17,008, 17,138,9 17,056,3 16,928,6 16,729,8

Total 6,938,562 15,040,903 89 241 76 02 63 92
Divided by 1 2 2 2 2 2 2 2
 166

Average
Total 8,257,39 8,504,1 8,569,48 8,528,15 8,464,33 8,364,94
Assets 6,938,562 7,520,452 5 21 8 1 1 6

A high Total Asset Turnover Ratio is indicative of the efficiency of the

company in the use of its assets to generate sales. The lower the ratio is, the

more inefficient the use of the assets is, and it reflects in the sluggish sales.

However, the relation is not automatically indicative of sound financial

management; the company still needs to compare this with the industry

average of 1.64.

Equity Multiplier

Equity Multiplier intends to measure the extent to which equity used is

to pay for all types of company assets.

EQUITY MULTIPLIER
2018 2019 2020 2021 2022 2023 2024 2025

Total 6,938,56
Assets 2 8,102,341 8,412,448 8,595,793 8,543,183 8,513,118 8,415,544 8,314,348
Averag
e 6,929,73
Equity 7 6,885,270 6,796,040 6,975,718 7,254,761 7,365,086 7,507,029 7,679,997
Equity
Multip
lier 1.00 1.18 1.24 1.23 1.18 1.16 1.12 1.08

                 
Averag
e
Equity:

Beginn
ing
Balanc
e - 6,929,737 6,840,802 6,751,278 7,200,159 7,309,362 7,420,809 7,593,249
Ending
Balanc 6,929,73
e 7 6,840,802 6,751,278 7,200,159 7,309,362 7,420,809 7,593,249 7,766,746

6,929,73 13,770,53 13,592,08 13,951,43 14,509,52 14,730,17 15,014,05 15,359,99

Total 7 9 0 7 1 2 8 4
 167

Divide
d by 1 2 2 2 2 2 2 2
Avera
ge 6,929,73
Equity 7 6,885,270 6,796,040 6,975,718 7,254,761 7,365,086 7,507,029 7,679,997

The entity’s equity multiplier ranges from 1 up to 2 only. The low

amount indicates the company uses less debt to finance its assets. It would

mean they relied on their equity in supporting their assets. The entity should

only use their equity multiplier in comparison to the industry standard or

businesses in the same sector.

Break-Even Analysis

Break-Even Analysis is a method of studying how much profit business

or product can make, by showing at what level of production costs are covered

by income and neither a revenue nor a loss is made.

CONTRIBUTION MARGIN
2018 2019 2020 2021 2022 2023 2024 2025

Sales - - - 671,278 1,391,100 2,521,189 2,657,426 2,710,575

Variable Cost - - - 318,328 557,768 990,081 1,078,390 1,173,808

Contribution
Margin - - - 352,950 833,333 1,531,108 1,579,036 1,536,766

Divide: Sales - - - 671,278 1,391,100 2,521,189 2,657,426 2,710,575

Contribution
Margin Ratio       53% 60% 61% 59% 57%

Selling Price
per Kilo - - - 400.00 450.00 500.00 510.00 520.20
Varible Cost
per kilo - - - 158.85 173.50 188.64 205.46 223.64
Contribution
Margin per
kilo - - - 241.15 276.50 311.36 304.54 296.56

BREAK-EVEN POINT
2018 2019 2020 2021 2022 2023 2024 2025

280,42 286,93 286,25

Fixed Cost 4 0 4 405,966 420,272 443,938 447,782 450,680
Contributio 53% 60% 61% 59% 57%
 168

n Margin
Ratio
Break-
even Sales 772,109.5 731,006.6 794,917.0
in peso       9 701,568.73 6 753,591.64 5
Divided by
Selling
Price - - - 400.00 450.00 500.00 510.00 520.20
Break-
even Sales
in units       1,930 1,559 1,462 1,478 1,528

The entity needs to sell 1,930 kilos of roasted coffee beans at a price of

400 pesos to break-even in the first year of operations. Same goes for the

following year; the business needs to sell a definite number of kilos at a

specific price to cover the cost of acquiring and owning it.

Payback Period

Payback Period is the number of years it takes to recover the initial

investment of a project from the cash flows it produces. The payback period

for a given project is a useful determinant of whether to undertake the project.

PRESENT VALUE PAYBACK PERIOD

Annual
New
Cash
Cost to be
Flows
recovered
from
Operatio PV of 1 at Present Payback
YEAR ns 12% Value Balance Period

2018 7,013,000 (48,723) 0.89 (43,503.02) 7,013,000 1

2019 7,013,000 (50,437) 0.80 (40,207.71) 7,013,000 1

2020 7,013,000 (44,362) 0.71 (31,575.94) 7,013,000 1

2021 7,013,000 578,972 0.64 367,947.48 6,645,052.52 1

1,189,07
2022 6,645,053 2 0.57 674,711.33 5,970,341.19 1

2,415,94
2023 5,970,341 7 0.51 1,223,994.18 4,746,347.01 1

2,413,37
2024 4,746,347 3 0.45 1,091,687.49 3,654,659.52 1
 169

2,458,48
2025 3,654,660 9 0.40 992,942.40 2,661,717.12 1
Payback Period cannot payback within 8 years

A short payback period is an indication of how quick you can get back

what the amount spent on the investment. In this case, an investment involving

long-term plant fields would inevitably end up in losses for the first few years

due to the lack of harvests to available to for sale. The partnership was not

able to recover what they have invested within five years and even with an 8-

year period. Nevertheless, on the 10 th year, it will have reached the payback

period.

SENSITIVITY ANALYSIS

Inflation Rate is one of the factors that contribute to the changes in the

economy. Sensitivity Analysis is a technique done to replicate the effects of

these economic changes to the business. Given below are the different

assumptions used to reflect different scenarios.

Case 1 Case 2 Case 3

Particulars
Increase Decrease Increase Decrease Increase Decrease

Sales Price   10%       10%

Delivery Expense     10%   10%  

Cleaning Supplies Expense     10%   10%  

Production Supplies Expense 10% 10%

Permits and Licenses     10%   10%  

Research and Study Cost     10%   10%  

Utilities Expense     10%   10%  

 170

Tools Expense     10%   10%  

Insurance Expense     10%   10%  

Office Supplies Expense     10%   10%  

Repairs and Maintenance
10% 10%
Expense
Professional Fees     10%   10%  

Advertising Expense     10%   10%  

Shown in the succeeding pages are the Financial Statements under

each scenario
Case 1
Primera Presko Company
Statement of Comprehensive Income
For the Years Ended December 31

2018 2019 2020 2021 2022 2023 2024 2025

1,251,99 2,269,07 2,391,68

Net Sales - - - 679,669 0 0 4 2,439,517

1,219,88 1,661,13 1,816,01

Less: Cost of Goods Sold - - - 844,845 2 6 2 1,913,410

Gross profit - - - (165,176) 32,109 607,934 575,672 526,108

1,727,49 2,896,92 2,983,87

Less: Operating Expense - - - 1,047,798 2 7 5 3,078,826

1,759,60 3,504,86 3,559,54

Operating Income (Loss) - - - 882,622 1 1 7 3,604,933

Less: Finance Cost 94,947 103,049 103,413 155,986 160,888 158,611 160,121 160,993

Net Operating Income (Loss) 1,598,71 3,346,25 3,399,42

Before Income Tax (94,947) (103,049) (103,413) 726,636 3 0 6 3,443,941

Add: Other Income - - - 96,681 80,983 65,139 49,135 32,957

Net Income (Loss) Before 1,517,72 3,281,11 3,350,29

Income Tax (94,947) (103,049) (103,413) 629,954 9 1 1 3,410,984
Less: Income Tax Expense
 172

1,005,08
(Benefit) (28,484) (30,915) (31,024) 98,564 455,319 984,333 7 1,023,295

Net Income (Loss) After 1,062,41 2,296,77 2,345,20

Income Tax (66,463) (72,135) (72,389) 531,391 1 8 4 2,387,689

Case 2

Primera Presko Company

Statement of Comprehensive Income
For the Years Ended December 31

2018 2019 2020 2021 2022 2023 2024 2025

Net Sales - - - 755,188 1,391,100 2,521,189 2,657,426 2,710,575

Less: Cost of
Goods Sold - - - 844,845 1,219,882 1,661,136 1,816,012 1,913,410

Gross profit - - - (89,657) 171,219 860,053 841,414 797,165

Add: Other
Operating Income - - - 1,047,798 1,727,492 2,896,927 2,983,875 3,078,826
Total Gross
Income - - - 958,141 1,898,711 3,756,979 3,825,289 3,875,991
Less: Operating
Expense 98,024 105,840 106,240 163,689 169,205 167,963 169,637 170,600
Operating Income
(Loss) (98,024) (105,840) (106,240) 794,451 1,729,506 3,589,016 3,655,652 3,705,391
Less: Finance Cost
- - - 96,681 80,983 65,139 49,135 32,957
 173

Taxable Net
Income (98,024) (105,840) (106,240) 697,770 1,648,522 3,523,877 3,606,518 3,672,434
Less: Income Tax
Expense (Benefit) (29,407) (31,752) (31,872) 116,300 494,557 1,057,163 1,081,955 1,101,730
Net Income
(Loss) After
Taxes (68,617) (74,088) (74,368) 581,470 1,153,966 2,466,714 2,524,562 2,570,704

Case 3

Primera Presko Company

Statement of Comprehensive Income
For the Years Ended December 31

2018 2019 2020 2021 2022 2023 2024 2025

679,66 1,251,99 2,269,07 2,391,68 2,439,51
Net Sales - - - 9 0 0 4 7
Less: Cost of 844,84 1,219,88 1,661,13 1,816,01 1,913,41
Goods Sold - - - 5 2 6 2 0
(165,176 32,10 607,93 575,67 526,10
Gross profit - - - ) 9 4 2 8
Less: Operating 1,047,79 1,727,49 2,896,92 2,983,87 3,078,82
Expense - - - 8 2 7 5 6
Operating Income 882,62 1,759,60 3,504,86 3,559,54 3,604,93
(Loss) - - - 2 1 1 7 3
98,02 105,84 106,24 163,04 167,98 165,74 167,29 168,21
Less: Finance Cost 4 0 0 0 1 5 8 5
Net Operating
Income (Loss) (98,024 (105,840 (106,240 719,58 1,591,62 3,339,11 3,392,24 3,436,71
Before Income Tax ) ) ) 2 0 6 8 8
96,68 80,98 65,13 49,13 32,95
Add: Other Income - - - 1 3 9 5 7
 174

Net Income (Loss) (98,024 (105,840 (106,240 622,90 1,510,63 3,273,97 3,343,11 3,403,76
Before Income Tax ) ) ) 1 6 7 3 2
Less: Other (29,407 (31,752 (31,872 93,83 453,19 982,19 1,002,93 1,021,12
Percentage Tax ) ) ) 9 1 3 4 8
Net Income (Loss) (68,617 (74,088 (74,368 529,06 1,057,44 2,291,78 2,340,17 2,382,63
After Income Tax ) ) ) 2 6 4 9 3

Comparative Ánalysis

2018 2019 2020 2021 2022 2023 2024 2025

Net Income (Loss)

Original (66,463) (72,135) (72,389) 583,799 1,158,931 2,471,708 2,529,587 2,575,760

Case 1 (66,463) (72,135) (72,389) 531,391 1,062,411 2,296,778 2,345,204 2,387,689

Case 2 (68,617) (74,088) (74,368) 581,470 1,153,966 2,466,714 2,524,562 2,570,704

Case 3 (68,617) (74,088) (74,368) 529,062 1,057,446 2,291,784 2,340,179 2,382,633

Return on Equity
Original - - - 7.97% 15.85% 33.19% 33.19% 66.82%
Case 1 - - - 7.28% 14.51% 30.77% 30.69% 61.77%
Case 2 - - - 7.94% 15.78% 33.12% 33.12% 66.68%
Case 3 - - - 7.25% 14.47% 30.79% 30.73% 61.87%

Breakeven Point in Pesos

Original - - - 661,362 660,601 690,424 711,374 750,671

Case 1 - - - 818,744
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718,580 712,421 742,583 768,419

Case 2 - - - 677,814 676,610 706,283 727,739 767,902

Case 3 - - - 736,455 729,685 759,640 786,097 837,538

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Analysis

Case 1 showcases the net effect of the decrease in selling prices.

There is an approximate decrease in net income of 50,000 cause by a 10%

decrease in selling prices. This is indicative of the firm’s sensitivity when it

comes to its selling prices.

Case 2 presents the net effect of the increase in select operating

expenses. There is only an approximate decrease of 2,000 caused by the

increase in the operating expenses. This is indicative of the firm’s sensitivity

when it comes to its expenses.

Case 1 and Case 2 bring about a negative effect on the financials of the

business separately so it is with absolute certainty that Case 3, bearing the

changes in Case 1 and Case 2, will have the lowest net income. Of the net

change in net income of 52,000, majority of the change is cause by the

changes in Case 1 – a decrease in the selling prices.

The comparative analysis of the operations of the business shows that

the firm has a higher income when the expenses are raised by 10% than when

the firm’s unit selling price is decreased by the same percentage. This is an

indication that the firm’s selling price has more impact than the operating

expenses. This is an advantage to the company since they cannot control how

much they need to pay annually, and that even if the entity did have control

over the expenses, it would only impact the operations minimally. The selling
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prices, however, are under the control of the company, which is an advantage

since, as shown above, the impact is massive.

For the Returns on Equity (ROE), the researchers have provided the

ratios with 2 decimal places in order to fully express the changes. For the first

3 years of operations in Case 1 and the original scenario, the ROE is the same

since they will only be incurring expenses in the same amount. As shown in

the Comparative Analyses, Case 2 always has the highest return. This is

another proof of the fact that the Expenses have a far lesser impact on the

operations than the Selling Prices.

The Comparative Analysis of the Breakeven Point in Sales, however,

shows that of the various cases, Case 3 ends up the one with highest

Breakeven Point in Sales. While it may not initially reveal Operating Expenses

having a lesser impact than the Selling Prices, a deeper look into the

composition of the items will prove that a change in Selling Prices has much

more impact on the financials than changes in Operating Expenses.

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CHAPTER VIII

SOCIO/ECONOMIC DESIRABILITY

This research acknowledges the importance of social economics. A

change in any established undertaking will give rise to many effects that may

or may not be intended. This first law of motion described by Isaac Newton

applies to many areas, most especially this plantation. The implementation of

this project may bring about many advantages. As this project is applied, the

following sectors may profit. The schematic diagram next page clarifies the

benefits and its outcome, and the succeeding paragraphs will discuss clearly.

Government
The government’s primary source of revenue is the tax collected from

the taxpayer. Law, as it is the lifeblood of the government requires the levy.

The project’s implementation will raise revenue for several taxpayers which

translates to an increase in government revenue. An increase in funds can

lead to more projects and better management of the country. With the

implementation of this plan, the upcoming tax-revenues will further increase

government for better services to the Filipino people.

Farmers
The project plans to make use of the farmers’ abilities. Their skills are

one of the foundations for the success or failure of the project. The farmers will
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receive compensation for the services they render; they will receive

reasonable remuneration for their time, efforts, and diligence during the

business. Their receipt of compensation can help farmers earn a livelihood for

their families and have better standards of living.

Target Market
The researchers have observed an increasing number of cafes and

coffee shops in Metropolitan Cebu. A notable example is Bo’s Coffee with

increasing branches in Cebu. There has also been an increase in vending

machines selling coffee. Bottled coffee such as Kopiko 78 and coffee ready-to-

drink tetra packs such as Nescafe’s French Vanilla, Caramel Macchiato, and

Café auLait, have also increased. This is evidence of greater demand for

coffee. The producers of these products require a steady supply of coffee

beans that the project intends to provide for after the implementation.

Provision of a steady stock of coffee beans can give stability to the target

market, which will help them generate increased profits.

Environment
The proposed method of coffee cultivation is the traditional method or

the shade-grown method. The shade-grown method involves the planting of

coffee seedlings under the shade of leafy trees. This technique has many

benefits to the environment as a whole. “The presence of a tree cover on what

are often very steep mountainous landscapes in high-rainfall areas help

stabilize slopes and minimize soil erosion. The tree roots, canopy cover, and
 180

leaf litter on the ground all help do this.” (Rice, 2010) The shade-grown system

aids the environment by reducing soil erosion.

Community
The community will be able to lessen unemployment rate through the

introduction of new occupations because of this project. An example would be

Tuburan coffee plantation which gave 900 jobs to farmers. The provision of

new jobs keeps residents away from illegal vices and instead focus on the

cultivation of the farm. The introduction of more jobs after the implementation

of this project can help ensure the future of the honest and the decent.

Philippine economy
The researchers envision the Philippines to cease being a net importer

of coffee beans/products. As it is, there is a massive gap between the supply

and demand of coffee/coffee beans. The disparity has led to coffee prices

staying in the high level of Consumer Price Index (CPI). Recent research has

shown that coffee prices are on the rise and will continue to do so. (Reyes,

2011) By this, the product will grow to be more expensive, but implementation

of this project may help mitigate the sudden increase in prices. Once the

country stops relying on others for the purchase of coffee, the economy can

stand more on its own.

Global economy
The export of coffee/coffee beans is also at a high level of demand. The

high export rate means that other countries also have an increasing need for

caffeine. However, not all nations are capable of growing coffee trees/shrubs
 181

due to their climate and terrain. Other republics with little land to spare or

those with barren lands can benefit, like Singapore or Australia. The

unsuitability of other nations’ land for growing coffee ensures that the product

will be marketable and sought-after. International trade will also help maintain

or even start good relations.

Coffee Industry
Aside from consumable coffee drinks, coffee can produce quite a lot of

products. The merchandises range from cosmetics, hygiene products,

aromatics, and others. So far, coffee has only been used to produce cosmetic

products (e.g., Pond’s Men Energy Charge) aside from the usual consumption.

More coffee would mean more room for experimentation for the creation of

varying coffee products.

Ecology
The shade-grown method of growing coffee makes sure has a positive

impact on the ecological. “Shade-grown coffee systems in Latin America,

Africa, and Asia have all been found to harbor a high diversity of shade trees.

Taller and more structurally diverse shade tends to have more bird diversity

than shorter, more architecturally uniform share.” (Rice, 2010) “The

introduction of coffee trees can also help in the plight of the honeybees as they

are rapidly dying in the world with a rate of 30 percent each year.” (McDonell,

2015) This project also aims to have no carbon footprint, helping the world be

a better place.
 182

Coffee Consumers
The ultimate coffee consumers can expect lower prices for coffee

products as a direct result of an increase in local supply. Shade-grown coffee

provides better tasting coffee and superior quality than the sun-grown coffee –

which is the norm for most coffee products because of its convenience. Local

consumers can also expect coffee that is richer in taste, texture, and aroma,

possibly paving an entry for the Philippine coffee in the international trade.

Competitors
A new competitor in the market will drive others to improve their

business model and marketing strategies. It pushes the working environment

to exert more effort in managing and selling tactics. It will also encourage them

to engage in shade-grown or traditional methods of growing coffee – which will

help the environment as compared to the sun-grown technique.

 183

SECTORS BENEFITS

OUTCOMES
 184

Increased
More
government funds
Government revenues
lead to better
from permits,
management and
licenses and
services to its
taxes
people

Just Better
compensation standards of
and a steady living for
income. Honest families
Farmer
pay for honest
work
Reliable source
of raw materials
that can be
Steady supply
Target turned into
of coffee
Market finished products
Figure 12. beans
leading to profits
Schematic
Diagram
Stabilize slopes,
Trees need minimize erosion
not be cut that will prevent
Environment
for the landslides,
plantation positively impact
carbon footprint

Provide
Community employment Regular income,
to the jobless lesser crime rate

A stronger,
Philippines lessens more
Philippine dependence on independent
Economy other countries for economy can
coffee be expected
 185

Global Steady supply International

Economy of quality trade relations
Filipino coffee will improve

Opportunity to
Coffee Increased improve and
Industry supply for increase other
coffee beans varieties of
coffee-based
products

Homes for
Healthier
Ecology birds and
biodiversity
other animals
are made

Costumer
delight;
More supply, improves
Coffee better prices, internation
Consumers better quality for al image of
local and foreign Philippine
consumers/users coffee

Improved business
Drives others to
model and
exert effort to
marketing
Competitors improve quality
strategies;
products or
encourage shade-
services
grown model
 186

CHAPTER IX

STRENGTHS, WEAKNESSES, OPPORTUNITIES AND THREATS

ANALYSIS

It is essential for a business to identify its strengths, weaknesses,

opportunities, and threats by conducting a SWOT Analysis – a structured

planning method that evaluates the elements of a business. This analysis

helps the trade focus its strengths, convert weaknesses to strengths, minimize

threats and properly utilize its available opportunities.

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SWOT MATRIX

STRENGTHS
 Arabica coffee is a
known premium variety
 Shade-grown method
yields better quality than
sun-grown method
 Possibility of
intercropping
 Easy accessible to the
target market
WEAKNESSES
 Product has short shelf
life
 Arabica coffee is less
pest resistant than other
forms
 Shade-grown coffee has
less yield than sun-grown
or modern method
 Lack of access to quality
and affordable planting
materials of small
farmers

OPPORTUNITIES
 Increasing growing
market for specialty
coffee
 Increasing trend of coffee
shops’ identity as “local”
 Increasing youth
preferring coffee over
other beverages
THREATS
 Impact of climate change
 Existing cheaper and
better quality imported
coffee
 Competition with
established and local
well-known brands
 Existing coffee drinkers
may change preference
to other beverages

Figure 13. SWOT Matrix

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STRENGTHS

Strength is the company’s internal factor that is a positive trait and an

advantage in a business. Arabica coffee is a well-known premium variety of

coffee. This means that the target market is familiar with the product. The

business also adopts the shade-grown method of growing coffee, which

makes products of better quality than the sun-grown method of growing coffee.

With the usage of the shade-grown method, there is a possibility of

intercropping which gives additional yield income, and it will maintain the soil

fertility as the nutrient uptake is from both layers of soil, it controls weeds and

provides support to the other crop. Lastly, the plantation is relatively near to

the market, which means that the product is more accessible to the target

market compared to the imported supply coming from other countries.

WEAKNESSES

If there are strengths, there are also weaknesses. The following

weaknesses of the proposed project include the product having a short shelf

life and Arabica coffee being less pest resistant. Having high start-up costs is

also a weakness for starting a plantation. Coffee takes three years until first

harvest and five years until common yield and has seasonal crops, which

delay the payback period. The farm uses a shade-grown method, which has

lesser yield than sun-grown or modern system makes it one of the

weaknesses of the business. Lastly, there is also a lack of access to quality

and affordable planting materials for small farmers.

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CONVERSION OF WEAKNESS TO STRENGTHS

Coffee has a short shelf life and coffee will spoil if left in humid area. To

remedy this, the coffee beans will be kept in a nippy and dry warehouse and is

to be stored immediately upon harvest. In addition, unroasted green beans

spoil after eight months, while roasted coffee beans spoil within one month. It

is recommended to budget every month and roast beans accordingly to

increase shelf life.

Arabica coffee is also less pest resistant than other forms and to

remedy this, the project plans to coordinate with the government sectors.

Examples of these are the Department of Science and Technology’s existing

coffee research and the Department of Agriculture’s coffee initiative. By

partnering with the government, better crop yield may be researched and will

help immensely in production. The partnership can be a strength to be

expected when coordination is smooth.

Coffee is also seasonal and takes a long time to mature. During this

time, it may be more beneficial to roast coffee beans bought from other farms

and then distributed to coffee shops at a profit.

The lack of access to quality and affordable planting materials of small

farmers can be used in the project’s favor to show what will happen when it is

invested into. By showing the effects of what happens if the there is ample

support for the agricultural sector, the success of coffee grown using the

shade-grown model will show and more investors can be expected.

 190

The high start-up costs can be mitigated by timing when to loan and

when to purchase equipment. By analyzing whether to buy the paraphernalia

on the 1st year of operation or to defer it to the usual operations, the funds will

go a long way.

OPPORTUNITIES
Before the implementation of the business, it is essential to know its

opportunities in the market that will give it an advantage. Opportunities are

external factors that symbolize the incentive for a business to survive and

thrive in the market. The openings for the proposed business include

increasing growing demand for specialty coffee, end users preferring locally

grown coffee beans, and increasing youth favoring coffee over other

beverages. Specialty coffees are grown in distinct and ideal climates and are

distinctive because of their full cup taste and little to no defects. The coffee

plantation being shade-grown produces these specialty coffees. It is a major

opportunity for the business since consumer nowadays chooses this kind of

coffee beans. Furthermore, coffee shops like Bo’s Coffee are more interested

in locally grown coffees than those imported coffees. This interest in locally

grown coffee would really give a positive impact on the plantation. Lastly,

study-outs are now becoming a trend, and most youths prefer doing study outs

in coffee shops thus giving the business advantage of the increasing number

of students who have become coffee drinkers.

 191

THREATS
Threats are inherent in every business. Threats are always dangerous

to a trade; it is unavoidable but it can be minimized or converted into

opportunities. One of the dangers of the proposed project is the impact of

climate change. The changing climate affects the growth of the plants and the

operations of the business. Existing cheaper and better quality imported coffee

is also a threat because the market always prefers quality content products

that imported ones can offer. Other risks are the competition with established

and local well-known brands in Cebu and existing coffee drinkers may change

the preference to other beverages (like tea, etc.).

CONVERSION OF THREATS TO OPPORTUNITIES

Managing the threats well may convert it into opportunities.

Understanding the danger is one of the ways to turn it into a break. If you know

your risks well, you might be able to formulate different strategies for planning

a good marketing strategy to overpower the existing coffee brands or so that

the product can compete well in the market. To convert the threat into an

opportunity, the plans are implemented after preparation. Some hazards are

very difficult to turn into opportunities like the impact on climate change; the

only thing to do then is create a good backup plan if ever the sudden changes

in the climate affect the operation in the plantation.

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CHAPTER X

SUMMARY, FINDINGS, CONCLUSION, AND RECOMMENDATIONS

SUMMARY
Objective of the Study

This study aims to research the feasibility of implementing an Arabica

coffee plantation in Dalaguete using the shade-grown model of planting. The

study also intends to investigate the viability of the production of roasted coffee

and its distribution to coffee shops here in Cebu city.

The objective of this study is to provide sustainability for farmers in the

long term while remaining an environmentally-conscious project. This study

also aims to alleviate the concerns of the Philippine economy relying heavily

on imports by producing coffee and selling locally. This study also aims to tap

into the increasing number of coffee shops here in Cebu by getting in touch

with cafe owners and contracting with cafe owners.

Answering the following questions will determine the feasibility:

1. Is the proposed plantation of shade-grown Arabica coffee in Cebu

feasible under each of the following aspects:

1.1. Technical;

1.2. Marketing;

1.3. Management;

1.4. Financing;

1.5. Legal and Taxation;

 193

1.6. Financial;

1.7. Socio-economic Desirability;

1.8. Strengths, Weaknesses, Opportunities, and Threat

2. Based on the findings, what recommendation maybe proposed for the

project?

Statement of the Problem

The Philippines is a demanding importer of coffee, importing around

90,000 metric tons of coffee every year and still struggling with meeting

demand for coffee every year. The great demand-supply gap existing is one

that the project hopes to help fill. There is also a growing unemployment rate

in the Philippines and coffee farmers are lower in number.

Another concern is that the standard way of growing coffee is cutting

down forests to grow coffee beans, called the sun-grown method of

developing coffee. The problem with this technique of propagating coffee is

that it severely damages ecosystems and the environment. This manner clears

down trees and livelihoods of birds and other animals. By destroying birds’

habitats, the food chain is affected. Pests such as cockroaches and locusts will

increase in number and target agricultural produce. More pesticide is not the

only viable solution as it may disturb the coffee negatively.

 194

Research Method Used

The basis for this research is the descriptive survey method. An ocular

scan was used to determine coffee shops and skipping over repeating

franchise stores. The target market for the project is on coffee shops located in

Metropolitan Cebu. The respondents are in different places: Mango Avenue, F.

Ramos Street, Ayala Mall, SM City Cebu, N. Escario Street and IT Park.

The measurement device used by the researchers to gather data is

primarily the questionnaire, interviews, and reliable electronic sources. The

statistical technique used to analyze the survey is the weighted mean method,

multiple choice ranking, and analysis of mutually exclusive choices. This data

is then analyzed using the arithmetic-geometric method.

FINDINGS
Technical Aspect

The technical aspect states the necessary materials, equipment, and tools

for use in the production. Included are the procedures to be followed to

implement the project, plant location, and layout, production capacity, quality

control implemented, utilities and waste management.

The proposed study is about the production and distribution of Arabica

coffee beans to coffee shops located in Cebu City. The necessary materials

are Arabica coffee seedling, fertilizers and water while the equipment and tools

needed are rakes, hulling machine, coffee roaster, baskets, tarpaulins, and

coffee bean sieves. Several processes are done and followed to ensure the
 195

quality if the products. The procedures should begin from the establishment of

the coffee plantation to lay-outing and holing. Next is, transplanting, followed

by care and maintenance, harvesting, processing and then the last is the

packaging and delivery of the product.

Marketing Aspect

The primary target market for this project is coffee shops in Cebu. There

exists a growing demand for coffee shops as international coffee brands are

branching out here in Cebu and the cafe culture is also increasing among

millennials. The main competitors for the product are the coffee imported

outside the Philippines - most probably from Vietnam or Indonesia.

Other competitors are farms in the Philippines, which are usually located

in Mindanao, from the SOCCSKSARGEN region. This freight advantage is a

benefit for the project which will help take a portion of the current market share

of coffee. The project will have a projected market share of around 10% of the

total market here in Cebu.

Management Aspect

The proposed structure for the project will be a partnership, with at least

one capitalist partner that will provide the land and one other partner that will

take care of the excess required capital for the business and the affairs of the

trade. The project will employ three farmers for the pre-operating period and

contract with the services of a bookkeeper annually. During the operating

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period, the firm will hire five temporary laborers and an in-house roaster. The

farmers earn annually Php 97,500.00 each and laborers paid daily at a

minimum wage. The bookkeeper will be kept on a retainer basis and will be

paid Php 36,000.00 every year.

Financing Aspect

The most important factor to consider for business is money. Financing

involves extensive planning which is necessary in evaluating how much does

the project will cost. It also deliberates determining where to acquire materials

and equipment at the least cost.

Entering into a partnership to finance the project is the most appropriate

as the source of financing. The prospective implementers have the option of

shouldering the costs using their funds or entering into loan agreements with

banks. The capitalist partner must shoulder the obligation of land in which he

will also receive a higher part of the profit share. The proponents also

recommend that the partnership borrow money from the Land Bank of the

Philippines, where they grant loans to agricultural business sectors. The

project will need a start-up capital of Php 7,618,392.50.

Legal and Taxation Aspect

The proposed project is said to be a partnership, and since it involves an

immovable property, it must be registered with the Securities and Exchange

Commission to acquire a separate juridical personality. Its name verification

 197

slip, articles of partnership, registration data sheet, and certificate of deposit

must also be secured. Furthermore, the permits and licenses needed are

Barangay Clearance, SEC Certificate of Registration, Mayor’s Business

Permit, BIR Certificate of Registration, SSS Registration, PhilHealth

Registration, Pag-IBIG Registration, DOLE Registration, and Bureau of Plant

Industry (BPI).

Every business has the responsibility to pay its tax requirement and as for

the proposed project involves agricultural product and uses only the simple

process of roasting, it is entitled to the Income Tax as the agrarian sector is

exempt from paying the 3% Other Percentage Taxes.

 198

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