Sunshine Hendricks owns a business called Don’t Burn Man. Sunshine sets up shop for two weeks at the Burning Man festival outside of Gerlach, Nevada every year. This is the only business Don’t Burn Man conducts during the year. Don’t Burn Man sells three products: Bags of Ice, Popsicles, and Sunscreen. The selling price for Ice is $5/bag. Popsicles sell for $3/each. Sunscreen sells for $15/bottle. Don’t Burn Man buys bags of ice for $1.05 each. They buy popsicles in a pack of 100 for $38 and sunscreen in packs of 10 for $44.

Don’t Burn Man’s other costs include:

• Credit card fees are 4% of the sales transaction. Don’t Burn Man only accepts credit cards and does not accept cash for security reasons (the playa is a tough place).

• Don’t Burn Man hires one employee for the event and pays her $1,500 for the two weeks, plus a space in the tent.

• Don’t Burn Man must get a permit to sell at Burning Man. The fee for the permit is $500.

• Don’t Burn Man must pay for gasoline to and from the event and to power the generator for the freezer. Gas generally costs $600 for the two week period.

Don’t Burn Man has two fixed assets that they use at Burning Man every year. These assets are only used during the two week festival and not used for any other revenue generating activities throughout the year. They own a truck with a built in freezer that they purchased in 2019 for $20,000. They estimate they’ll be able to use the truck for 6 years and will be able to sell it for $2,000 when they’re done with it. They also have a generator, which was purchased for $2,000 in 2020. They expect the generator will last for 5 years and will be worthless at the end of 5 years.

Don’t Burn Man would like you, their accountant, to help them analyze their business. In the first part of this case study, you’ll be analyzing costs, breakeven, and target income.

Assignment:

1. Make a chart listing all of Don’t Burn Man’s costs. Identify each cost as Fixed or Variable and Product or Period.

2. Calculate the Contribution Margin for each product.

3. Don’t Burn Man’s customers buy 25 bags of ice for every 10 popsicles and every 6 bottles of sunscreen. Calculate Don’t Burn Man’s breakeven number of composite units and breakeven number of units for each product.

4. Sunshine Hendricks would like to make at least $40,000 profit from the Burning Man event. Calculate the number of composite units and the number of units of each product that Don’t Burn Man will have to sell to achieve a target income of $40,000.