A close friend is considering opening a milkshake stand on the beach of a resort in Ibiza and asked for your help with the financial planning. With excitement, she explained that her milkshakes will be unique as they will be served with flavored straws that match the flavor of the milkshakes chosen by customers.

She intends to offer two products: Small Milkshakes and Large Milkshakes. Regarding costs, she identified the following minimum operating costs for the business:

Competitors$$ Sales Price of Milkshakes Secret Recipe $-$ Components

Whole Milk $(15$ for a $5$ gallon$=740$ oz$.)$ Cream $(20$ for $1$ gallon$=128$ oz$.)$

Sugar $(10$ for a $15$ lb$.$ bag$=30$ cups$)$ Premium Vanilla Ice Cream $(24$ for $600$ oFzla.$)$vorings

Flavored specialty straws

Cups $(5008$ oz$.$ cups @ a cost of $200)$ Cups $(50012$ oz$.$ cups @ a cost of $250)$

Small $(8$ oz$.$ size$)7\mathrm{.}00$

$($need $2$ oz$.$ of milk$)($need $2$ oz$.$ of cream$)($need $12$ cup of sugar$)($need $6$ oz$.)$

$\mathrm{.}25$ per shake $\mathrm{.}75$ per straw

$--------------------------$

Large $(12$ oz$.$ size$)10\mathrm{.}00$

$($need $3$ oz$.$ of milk$)($need $3$ oz$.$ of cream$)($need $34$ cup of sugar$)($need $9$ oz$.$ of cream$)\mathrm{.}40$ per shake

$\mathrm{.}75$ per straw $-------------------------------$

$--$

She further explained that she plans to take out a non$-$owner loan amounting to $4,780$ to cover

the following items:

$$ Equipment: Industrial Milk Shake Maker: $72$ per machine x $10$ machines$=720$

$$ Equipment: Industrial Refrigerator$/$freezer: $480$

$$ Stand rental: $500$ a month

$$ Cleaning and other miscellaneous supplies: $100$ a month

$$ Countertops: $1,200$

$$ Tables and benches for customers to sit outside: $108$ per bench$-$set x $10=1,080$

$$ Annual insurance: $600$ a year

$$ Sign: use your marketing knowledge to think of a good name$=100$

A self$-$amortizing loan is assumed to be obtained from a bank and will carry an annual interest rate of $6\%$ payable over $2$ years with monthly payments $($each monthly payment consists of both principal and interest$).$

Labour costs: She expects that it will need two part$-$time employees: with each receiving a monthly salary of $800$ per month $($including taxes and benefits$).$

Other costs: $10\%$ of gross sales must be given to the resort where the stand will be located on its premises. The owner$$s capital will be used to cover direct materials$$ costs.

Resort Information: The resort manager explained that throughout the year they have between $300$ and $400$ guests $($including adults and children$)$ staying in the resort every day. The manager agreed to provide a daily report with information on the number of children and adults staying in the hotel.

Part $1$: Relying on information provided by your friend, determine the number of milkshakes she will need to sell to reach a certain target profit: a salary for your friend.

In order to do this, you will likely need to set new sales prices as well as classify the above costs into fixed or variable.

Notes:

$-$ Keep all costs on either a weekly, monthly, or yearly basis throughout your analysis.

$-$ You may want to estimate the useful life of long$-$term assets, such as equipment, tables, and countertops that will be first acquired using the loan. Then, you will need to determine how to maintain the business.

Part $2$: Provide an assessment of how your assumptions may impact your analyses. You may find useful to provide some sensitivity analyses to better understand the impact of your assumptions and identify key performance indicators that could help with strategic pricing$/$planning$.$