Discussion Questions:

1. What factors can be expected to have a major Impact on the success of The Chai Coffee?
The factors that have a major impact on the success of the business are:
 Location of the business
 Rental/lease cost
 Cost of equipment
 Cost of producing each tea and coffee
 Price of tea and coffee per cup
 Wage costs
 Level of competition
 Production rate per hour

2. What major tasks does Varghese have to undertake in managing The Chai Coffee?

The major task to be undertaken includes the following:

 Maintaining service and product quality
 Supervision of employees
 Maximizing employees performance
 Ensuring each site to make sure that the business continues to be profitable
 Evaluating new sites for the construction of new outlets
 Deciding the type of promotions for the products

3. What are the major costs of operating The Chai Coffee?

Major operating costs include:
 Rent at each site
 Employee wages
 Vincent’s assistant’s salary
 Equipment cost
 Furniture and fitting
 Business license
 Insurance for each site
 Advertising cost
 Cost of tea powder, coffee powder etc.
 Cost of supplies
 Government rates and taxes
4. Varghese would like to monitor the performance of each site manager. What measure, or
measures, of performance should he use?

Profitability is one of the methods that can be used to measure the performance of the
employees. The other measures can be used are employee turnover, service and product
quality and customer satisfaction.

5. If you had suggested more than one measure, which of these should Varghese select if he
could use only one?

Profitability is the measure that should be chosen because the other measures don’t
address the manager’s performance. Profitability is the primary objective of all business.
Without profitability the business will not survive, so measuring the current and past
profitability and projecting the future profitability is very important to the business.
Since Profit = Revenue-Expense, It is easy to determine the profitability of both the sites.

6. Suppose that last year, the original site had yielded total revenues of ₹14, 60,000, total
costs of ₹12, 00,000, hence a profit of ₹2, 60,000. Varghese had judged this profit
performance to be satisfactory. For the coming year, Varghese expects that due to such
factors as increased name recognition and demographic changes, the total revenues of
this site will increase by 20 percent to $17, 52,000. What amount of profit should he
expect from the site?
If the revenue increases to ₹17, 52,000 and the overall cost remain same, he is
expected to attain a total profit of ₹5, 52,000. However, expenses increase along with
profit in most cases. As a result, his profit will be less than ₹5, 52,000 due to increase in
expense. The total profit will be in between ₹2, 60,000 and ₹5, 52,000 as long as the
overall cost will not excess total revenue.