Accounting Project

Background

Snowie, owned by Carl and Gordon Rupp, is a company that provide

s training, equipment, and

supplies for operating a shaved ice business. Shaved ice i

s an ice-based refreshment made by

shaving a block of ice into

a

fluffy

,

snow-like ice

.

The product is served in cups with flavored

syrups added to the ice. Due to its fine texture, shaved ice a

bsorbs the syrups, making each bite

flavorful

.

Snowie does not sell franchises. It sells a wide array

of equipment and supplies, from

ice shavers, kiosks, carts, buses, syrups, cups, and other s

upplies to independent operators.

CVP Analysis with a Snowie Kiosk

Assume that you are evaluating whether to start a Snowi

e business. You

,

you could operate a

shaved ice kiosk at fairs, downtown areas, and other outdoor

events. The kiosk is portable with

wheels and a hitch. It has plenty of storage place, work

area, electrical outlets, lighting, and a

water system. The flavored shaved ice, a

Snowie,

is normally offered in three sizes. For this

case, we are going to assume that only one size is offe

red

the large size, 20 oz. The large

Snowie sells for $4.00.

2

Costs

All listed costs relate to the large size Snowie.

Ice per Snowie

$ 0.20

Spoon straw (need one per Snowie)

$ 0.02

Styrofoam cup (need one per Snowie)

$ 0.08

Napkin (need two per Snowie)

$ 0.01

Servings per gallon of syrup

28

Ounces of syrup needed per Snowie

4.5

Cost per gallon of syrup (includes concentrate, preservati

ve, and

sugar)

4.25

Number of ounces per gallon

128

Hourly rate for workers

$ 10.00*

Registration fee for events per day

$ 25.00*

Electricity, insurance, maintenance, and permit costs per

month

$ 250.00*

Rental cost of a kiosk per month (12-month lease)

$ 650.00*

Purchase cost of two ice shavers (5 years lifetime)

$3,200.00

Purchase cost of a flavor station (5 years lifetime)

$

1,100.00

*Assumption made for for this case

Requirements:

1.

Specify your assumptions about the following items:

a.

Number of days you anticipate opening the Snowie kiosk per m

onth _______

b.

Number of hours you will work (no wages required) per day ________

c.

Number of hours you will pay an employee to work in the S

nowie kiosk per day _____

2.

Is the cost of syrup a variable or fixed cost with respect to

the number of Snowies sold? What

is the cost of syrup per Snowie?

Discuss your answer.

3.

Is the cost of the worker attending the kiosk a variable o

r fixed cost with respect to the

number of Snowies sold?

Discuss your answer. What is the cost of the worker wage pe

r day

and per month?

4.

What is the total variable cost per Snowie (per cup)?

5.

What is the total fixed cost per month to operate the Snowi

e business?

6.

Using the data given and your assumptions in requirement (1)

,

calculate the number of

Snowies that you have to sell each month to break even.

7.

Assume that you want to make an operating profit of $2,000 per

month (before taxes). How

many snow cones must be sold to achieve this operating profit

?

8.

Think about the break even and target profit quantities you jus

t calculated. Do you think

these quantities are realistic? Discuss and support your a

nswer.