Case Study Background Information

Purple Cow operates a chain of drive-ins selling primarily ice cream products. The following information is taken from the records of a typical drive-in now operated by the company.

Average selling price of ice cream per gallon		$15.70
Number of gallons sold per month		3,100
Variable costs per gallon:
Ice cream	$4.85
Supplies (cups, cones, toppings, etc)	2.15
Total variable expenses per gallon		$7.00
Fixed costs per month:
Rent on building		$2,300.00
Utilities and upkeep		740.00
Wages, including payroll taxes		4,870.00
Managers salary, including payroll taxes but excluding any bonus		2,600.00
Other fixed expenses		1,400.00
Total fixed costs per month		$11,910.00

Based on these data, the monthly break-even sales volume is determined as follows:

$11,910 (fixed costs)	=	1,369 gallons or ($21,493)
$8.70 (contribution margin per unit)

1. Draft a memo to management indicating your recommendation with respect to these alternative marketing strategies. The memo should include supporting evidence for your recommendations. Also, compare the possible strategies to what the company is currently doing.