4. Finance
4.1. Costs and Expenses
國
立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
4. Finance
4.1. Costs and Expenses
Just like other enterprises, Viet Village incurs three types of costs, including establishment costs pertaining to the set-up to restaurant during the fresh establishment period (or, called capex), direct costs arisen from the sales functions and indirect costs (or, called expenses) arisen from other administration work. On this account, the capex will be allocated during the operation term of Viet Village (in depreciation of fixed assets, allocation of premises rental, etc. in the Expenses category) while the direct costs and other expenses will be considered as calculating profit margin of the restaurant business. In order to estimate the costs and
expenses likely to incur during a specific length of time, the breakdown of costs and expenses is as follows:
Capex
Capex, or capital expenditure, is deemed as initial investment amount, which is used to acquire fixed assets and to rent business premises to serve the establishment or business expansion and, it is allocated on the basis of the fixed asset type in line with the prevailing accounting laws of Taiwan. Assuming that Viet Village’s payback period is two years and, the restaurant starts earning profit from the third year, the capex is expected to cover all the costs and expenses (any possible loss) in at least two years. Accordingly, the initial fixed assets should be acquired are categorized into three sub-categories as follows:
- Business premises: this the restaurant space in Song Shan during the contractual term.
Assuming the payback period of Viet Village is two years, the leasing period is expected
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
to last three years at least. Viet Village is obliged to pay a security deposit30 and monthly rental as contracted. Whilst the security deposit is allocated into “other payables” on balance sheet, the monthly rental will be directly included in direct costs. Besides, the capex of business premises is inclusive of premises renovation, which is allocated into operating expenses in a specific period as prescribed by Taiwanese accounting laws.
Basing on the market prices for space leasing in Song Shan area shown in the space exchange floor Colliers31, the average market unit leasing rental for the space in this area is as follows:
No. Area Unit
(ping)32
Price
(NTD) Average
1 Song Shan - Bade 159.7 800,000 1,515.15
2 Song Shan - Nanjing E. Road 37.2 380,000 3,089.43 3 Song Shan - Fuxing N. Road 24.2 230,000 2,875.00 4 Song Shan - Dunhua N. Road 39.3 200,000 1,538.46 5 Song Shan - Najing E. Road 26.6 200,000 2,272.73
6 Song Shan - Minsheng 11.2 190,000 5,135.14
7 Song Shan - Dongxing 6.4 160,000 2,000.00
Because Viet Village aims to be located near Rao He night market to take the advantage of the visitor traffic to this area, the restaurant should be at Bade Road. Besides, the restaurant
30 According the prevailing Land Act of Taiwan as of the thesis date, the security deposit is of one or two-month of monthly rental, paid in cash, and any interests incurred from the deposit must be offset against the rental.
31 Colliers International is a Canada-based global commercial real estate services organization with approximately 15,000 employees in more than 400 offices in 68 countries. The figures mentioned in the table are announced on 22 February 2020 on the leasing floor of Colliers.
32 Ping is a popular measure of Taiwan. 1 ping = 0.3025 sqm.
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
space for thirty-eight seats and kitchen area is estimated at 36 ping, which means Viet Village incurred every month is roughly NTD 180,000 and, the deposit amount for the space leasing reaches NTD 360,000 to NTD 540,000, depending on landlord’s conditions.
- Front of House (FoH) and Back of House (BoH) equipment: Capex of FoH includes the fixed assets such as table set, furniture, decoration ornaments, bar equipment, utensils, signboard, counters, etc. while the one of BoH covers kitchen equipment such as ovens, refrigerators, storages, burners, etc. All of the capex incurred from this category will be depreciated and allocated into operating expenses of Viet Village in compliance with Taiwanese accounting laws.
Accordingly, the survey of the market prices for the FoH and BoH is performed based on the some of the most well-known traders mentioned by MoMo33 and TAITRA (or, known as Taiwan External Trade Development Council) 34. Although the planner tried to make the figures as soon as possible, the actual ones might be changed from time to time. Details are as follows:
33 Momo is one of the popular e-commerce platforms of Taiwan, being founded by Fubon Media Technology in 2005
34 TAITRA is a non-profit government co-sponsored trade promotion organization in Taiwan, assisting assists Taiwan businesses and manufacturers to reinforce their international competitiveness and to cope with the challenges they face in foreign markets.
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Category Qty
Quoted price of Supplier 1 (NTD)
Quoted price of Supplier 2 (NTD)
Quoted price of Supplier 3 (NTD)
Chosen price (NTD)
Costs recorded
(NTD)
Front of House
Table set 10 7,917 6,570 7,470 6,570 65,700
Utensils 40 500 650 700 500 20,000
Signboard 1 1,080 980 940 940 940
Decoration
ornaments 1 40,000 40,000 40,000 40,000 40,000
Back of House
Oven 2 73,000 70,000 68,000 68,000 136,000
Refrigerator 2 36,499 36,900 36,900 36,499 72,998
Smoke absorber 2 29,750 29,800 30,500 29,750 59,500
Blender 1 3,930 4,180 4,180 3,930 3,930
Cooking pots and
wok 1 20,000 20,000 20,000 20,000 20,000
Kitchen accessories 1 20,000 20,000 20,000 20,000 20,000 Noodles machine 1 19,969 18,069 16,974 16,974 16,974
Water sink 4 2,720 2,635 2,533 2,533 10,132
Total 466,174
- Licensing: Viet Village will be set up on the basis of the incorporation of single-shareholder limited liability company, which must be in compliance with the Company Act of Taiwan, this means, Viet Village needs to perform legal formalities to register the business and tax code as well as obtaining the investment certificate and/ or incorporation certificate from the competent authorities in Taipei. Besides, as a company specialized in
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
restaurant business, the sub-licenses such as Certificate of Food Safety or Health Food Permit as required by Taiwan Food and Drug Administration must be acquired, too. And, all of the fees incurred from these licensing process, which are included in capex the allocated in operating expenses, are assumed of NTD 10,000.
Direct Costs
Direct costs of Viet Village include costs of goods sold and direct labor costs constituting the cost price of a product unit. For more details, the direct costs cover:
- Food and drink ingredients
Category Average price
(NTD)
Loaf of Fresh White Bread (50.00 g) 5.41
Rice (white), (0.25 kg) 25.33
Eggs (regular) (2.40) 14.74
Chicken Fillets (0.20 kg) 51.85
Beef Round (0.10 kg) (or Equivalent Back Leg Red Meat) 63.18
Apples (0.25 kg) 36.82
Banana (0.25 kg) 16.09
Oranges (0.15 kg) 12.63
Tomato (0.20 kg) 19.71
Potato (0.20 kg) 17.15
Onion (0.10 kg) 6.79
Lettuce (0.10 head) 4.61
Total spending per serving 274.31
‧
However, normally, the serving offered by Viet Village is made from common ingredients, including rice, meat (or seafood), fruits and, special condiments being imported from Vietnam. Hence, the total cost spending per serving is re-estimated as follows:
Category
Average price per serving
(NTD)
Explanation
Rice and condiments 25.33 As mentioned above
Meat 57.515 Average price of meat
Fruit 12.83 Average price of fruit
Total spending per serving 95.675
- Direct labor costs
Job position Demand
Referential
In other words, the direct costs are those directly associated to every unit of product being sold to customers and, these costs are exclusive of expenses on kitchen equipment, restaurant supplies, furniture, rentals, etc. because the latter is deemed as operating expenses. As said,
35 These referential annual salaries are originated from a statistic of salaries in Taipei conducted by Teleport, a platform for users to explore the personal preferences and the data on the cities they want to move to.
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Viet Village employs nine employees, including four waiters (working as part-time workers),
one head chef, one sous chef and, one kitchen assistant (working full time job) and pays salaries to them as mentioned in the table.
Except for monthly salaries, Viet Village is obliged to incur a health insurance premium for these employees. According to the Bureau of National Health Insurance (hereinafter referred to as NHI), the employees working for Viet Village are categorized in Category 1 –
employees of public or private owned enterprise/ organization, therefore, the monthly insurance premium is calculated as follows:
Premium = Salary Base * Insurance Premium Rate *(1+average number of dependents)
As mentioned by NHI, the applicable insurance premium rate has been fixed at 4.69% as since 2016 while the average number of dependents as at January, 2020 is 0.58, according to a statistic conducted by NHI.
In addition, as a nature of restaurant business, the head chef, sous chef and kitchen assistant are expected to work three hours36 of overtime working every day. According to Article 24 of Labor Standards Act, Viet Village is obliged to pay an overtime working wage for these employees at the rate of 2/3 their hourly wage. In other words, the overtime working wage of employee will be calculated as follows:
Overtime salary per month = overtime working hours per month * hourly rate * 2/3
36 The operation hours of Viet Village start from 8:30 to 22:00 (including 2.5 hours of break time for fixed position). The working hours of Taiwan are around 8 hours per days. Which means, every fixed position requires to perform 03 hours of overtime working every day.
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
And, this additional salary is just applied for the fixed positions of head chef, sous chef and kitchen assistant because the waiters work on shift and therefore, they do not have any overtime working hours.
Indirect Costs (or, Operating Expenses)
Indirect costs of Viet Village refer to those not associated to the production and sales of a product unit because they are paid for the business operations as a whole and their attributes simultaneously repeat in every function of the restaurant. For more details, the operating expenses cover:
- Marketing;
- Administration overheads;
- Depreciation of office rental;
- Depreciation of fixed assets;
- Wages (and insurances) for indirect workers, and - Other miscellaneous.
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
-
Operating expenses
Monthly estimate (NTD)
Explanation
Marketing 60,000
The monthly marketing expense includes the allocated amount of NTD 4,000 from initial branding valued at NTD 152,000, allocated in 0three years, and monthly advertising incurred of NTD 56,000).
Administration
overheads 50,00037
The monthly administration overheads include those on gas, water, trash fee, telephone, internet, TV cable, power, kitchen supplies, etc., roughly estimated at NTD 50,000.
Office rental 180,000 Details are mentioned in Capex above.
Allocation of premises
renovation 55,556 Allocation of office renovation Allocation of office
deposit 10,000 This is the allocated amount of NTD 15,000 of office deposit in three years.
Depreciation of fixed
assets 13,000
The total assets are valued at NTD 466,174. Although these fixed assets might have different allocation periods as required by laws, the estimated amount here is based on the allocation period of 0three years for all assets.
37 Because the temperature during summer time of Taipei (including June, July and August) is around 30 degree of Celsius, the consumption of water and power will be increased. Therefore, the administration overheads of June, July and August are estimated to go up by TWD 15,000 (i.e. TWD 65,000).
‧
國立 政 治 大 學
‧
N a tio na
l C h engchi U ni ve rs it y
Operating expenses
Monthly estimate (NTD)
Explanation
Salary of indirect
employees 77,526
This is the monthly salary paid to part-time cashier and full-part-time administration assistant.
Other miscellaneous 15,000
This is the allocated licensing fee and uniforms and non-business expenses might incur during the operations (including, staff birthdays, condolence, visit fee, etc.), which is estimated on average amount.
Total 461,082