CVP ANALYSIS AND EVERYDAY LIFE

1) You have just finished college and are now looking for a job. Because all you did in college was sleep, drink and party, however, no one will hire you. Since you cant get a job in your major, you have decided to play to your strengths and open a party school. For $200, you will teach college students how to party and have fun. You call this business Party with a Smarty. You figure you wont have much of an initial investment, but you find out that you have to rent a large room for people to practice partying in at a cost of $2,000 a month. Your friend is a DJ and will charge you $1,000 per month. You have decided, at least for now, to rent the furniture, and that will set you back another $200 per month. Advertising will run right around $300 for ads in the Chronicle and in the college papers. The $200 that each student pays covers 4 parties and pays for all drinks and food. You estimate that each student will have an average of 2 drinks at each party and will eat 2 hors doeuvres per party. You are paying a caterer/bartender who will charge you a per-person cost of $3 per drink and $1.50 per hors doeuvre. You also are going to, at least for now, pay an outside sales person to sell your party plan to students, and the sales persons commission will be $64 per student, whether he sold them the plan or the student came to you on his/her own. What you want to know is, how many students must you sell tickets to in one month in order to make your needed earnings of $2,500 a month?

2)

You are now a grown-up and have 2 children: Nicole, aged 6, and Yuri, aged 8. They want to sell lemonade in the front yard for $.50 a glass. You agree that this would be a good experience in entrepreneurship, and tell them that you will loan them the money but they have to pay for their materials and equipment (the labor, however, is free.)

The lemonade mix costs $4.79 a package, and will make 100 glasses of lemonade. The sugar that you must add cost $2.21 for 5 pounds. You will need 2 cups for every pitcher of lemonade, and you estimate that a pitcher will be about 10 glasses. You also calculate that it will take all 5 pounds to make 100 glasses.

The lemonade stand itself is made out of plywood, screws and paint that you paid about $25 for.

a) How many glasses will your children have to sell to pay you back for the plywood and cover their variable costs?

b) What if your kids wanted to make a profit of $50? How many glasses would they have to sell?