Activity 18-5: The Case of Mallory's Lemonade Stand (B)

It is March 2019 and Mallory has come a long way since last summer. Her lemonade was a hit - everyone raved about her secret formula (she added some special spices suggested by her grandmother). When Mark Cuban (billionaire investor) happened to drive through the neighborhood he had a cup of Mallory's lemonade and offered to invest in the company. So Mallory's Lemonade Stand Lemonade will soon be found in a limited number of local Whole Foods Stores. Mallory had to figure out some pricing. She started with the knowledge that retailers would want to sell her 20 oz bottles for $2.00 at retail.

Mallory figured her costs as follows:

$10,000 in fixed costs for various costs including some local advertising she to support Whole Foods.

A co-packer (company that manufactures food products to specifications) will charge $.50 for each 20 oz bottle - including bottles, packages, and delivery.

Mallory assumes she can sell 30,000 bottles.

Mallory plans to charge Whole Foods $1.00 each for the bottles. Whole Foods will charge $2.00.

Using average cost pricing, she is counting on a $5000 profit.

1.Assuming the numbers shown here, what is Whole Foodsmarkup percenton each bottle of Mallory's Lemonade Stand Lemonade?

2.Using Mallory's projected sales of 30,000 bottles, calculate Mallory's: a)average fixed cost, b)average variable cost, and c) total profit?

3.What is Mallory's profit if sales only turn out to be 15,000 bottles?