Dairy Business – A Visit

Te am Me m be r s

 Anitha 11
 Arijith 18
 Rambabu 40
 Jenkin 42
 Manivel K 56
 Megha 58
Features of Small Dairy Business
 Smaller as compared to a dairy farm
 Limited capital
 high in labor
 Efficient in specialized products and services
 Capital and fund:

i. Owner’s saving

ii. Local money lenders

iii. Bank

iv. Advance payment by customers

v. Mortgage
 Area of operation is small
Factors Affecting Business
 Government rules and regulations:
 dairy business not allowed in metropolitan cities

 Strict regulations for tier I and tier II cities

 Land
 Cash Flow : for labour,cows, feed, electricity etc.
 Labour
 Availability and maintenance of Cows: diseases and feed
 Proper distribution Channel : due to lack of storage, milk needs to
be distributed immediately to avoid loss.
 Weather : The price of milk falls during monsoon.
 Feed and Medicine Cost (per
month)
Items Quantity/ Cost per No. of cows No. of days Total
cow/day(kg) kg

Straw 4 3 200 30 72,000

Wheat dust 5 12 200 30 3,60,000

Mustard 0.25 15 200 30 22,500

seeds dust
Jaggari 0.5 20 200 30 60,000

Pulses 2 14 200 30 1,68,000

Medicines 20 200 30 1,20,000

Total Cost 8,02,500

Costs
 There is no fixed cost in this dairy farm business if the business is done in
own place.

 All the cost are variable and depend on the no. of cows.

 For 10 cows one labor is needed whereas for 200 cows 15 labor is
sufficient.

Reordering
 Reordering level
 For Straw, its 2,400 KG
 For Wheat Dust, its 3,000 KG

 During monsoon seasons, straw & wheat dust are procured and stored for
2 months in advance
 Revenue & Expenses
Total milk production per month 60000
Price/ liter(Rs) 18
Total 1080000
Buying price per cow 20000
Selling price per cow 25000
Profit for 200 cows/month 83000
No. of labor for 200 cows 15
Labor wage per day 150
Total wages for 30 days 67500
Electricity Bill per month 10000
feed and medicine cost/month 802500
Net Profit/month 283000
Identifying Invisible Costs
Defn: Highest price an alternative course of action would provide.
Also known as Opportunity cost or hidden cost /losses.

In case of dairy business there are some important hidden losses

such as :
 Amount of milk wastage - During transportation and pouring in
average 10ltrs/day milk is wasted
Total losses per month for 200 cows = 10ltrs * Rs18 * 30 days = Rs. 5400/-

 Amount of feed wasted - Feed wasted per cow per day in

average is 0.5kg
Total loss for 200 cows per month = Rs. 10 * 30 days * 200 * 0.5 Kg = Rs. 30000/-

It’s a huge amount which can be saved if feed is properly managed.

Identifying…. [contd…]
 Recycling the cow can produce profit

 Utilizing cow dung

 Position of Business

 Save electricity and water

 Salary of the owner – Rs. 20,000/-

 Rent of the place – Rs. 8,000/-

 Stock-out Cost – Nil

 Change in Costing
 No track of costs (direct or indirect)
 Pricing done on competitive-based model
 Not much consideration for costs are given
 Costing model cannot be changed
 Pricing cannot be directly fixed to cost
 Activity Based Costing (ABC) proposed
 Makes it possible to identify indirect costs
 To keep track of all the direct & indirect costs involved
 Not used for pricing but for getting clear picture on costs
 Little tedious to maintain account of each & every cost
 Analyzing Inventories – ABC
Analysis
A B C
Straw Mustard seeds dust Pulses
Wheat dust Jaggari Medicines
Pesticides

Our ABC Analysis is on Cost per kg vs. Value as against Quantity vs. Value

 “A Class” inventory contains items that account for 17.8% of cost, or 70% of value
 “B Class” inventory will have 31.7% of cost, or 30% of value
 “C Class” inventory will have 50.5% of cost, or 0% of value
Thank You!!
Questions?