Eleven-year-old Mallory is a budding entrepreneur. She is always coming up with new business ideas. In early summer 2019, her latest venture is a lemonade stand. Mallory is focused on making a high level of profits - she was saving for a new bike. Mallory is trying to develop a marketing strategy to help her achieve her goals.

Last year Mallory helped a friend with a lemonade stand. This year she wants to run her own business. Her parents expect her to pay for almost everything related to her business. Her dad built her a small lemonade stand - and while he donated his time, he did ask for the $12 in materials needed to build the stand. Mallory had to purchase other supplies as well. She bought a nice one-gallon pitcher for $5 and cups cost her $.10. She figured out that sugar and lemons were costing her $.30 for each 12-ounce cup she sold. Her parents let her use ice from the freezer - no cost there. Mallory planned to charge $.75 per cup for her lemonade. Oh, and Mallory has a secret weapon. Her grandma had a little spice combination she put into lemonade that people just love - she knows from experience that once customers taste herlemonade they will be coming back for more.

She is looking for some help with some of her calculations and in determining a price. Answer the following questions:

1. Which of Mallory's costs are fixed costs? These are the costs that will not change whether Mallory sells few or many cups of lemonade.
2. What are the variable costs? These are costs that change directly with Mallory's sales. They go up proportionately to Mallory's increased number of sales.
3. What is Mallory's fixed-cost contribution per unit (assumed selling price minus the variable cost per unit)?
4. How many cups of lemonade does Mallory need to sell to break-even (BEP)? Recall that the break-even point (in units) = (total fixed costs)/(fixed cost contribution per unit).

Activity 18-1: The Case of Mallory's Lemonade Stand (B)

It is March 2020 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 Foods markup percent on each bottle of Mallory's Lemonade Stand Lemonade?
2. Compared to Whole Foods markup percent, what is the markup percent for Mallory? (Hint: you need to first calculate the average total cost for Mallory)
3. Using Mallory's projected sales of 30,000 bottles, calculate Mallory's: a) average fixed cost, b)average variable cost, and c) total profit?
4. What is Mallory's profit if sales only turn out to be 15,000 bottles?