JEN AND LARRYS FROZEN YOGURT COMPANY (Please show the steps for each question)

In 2016, Jennifer (Jen) Liu and Larry Mestas founded Jen and Larrys Frozen Yogurt Company, which was based on the idea of applying the microbrew or microbatch strategy to the production and sale of frozen yogurt. Jen and Larry began producing small quantities of unique flavors and blends in limited editions. Revenues were $610,000 in 2016 and were estimated at $1.1 million in 2017.

Because Jen and Larry were selling premium frozen yogurt containing premium ingredients, each small cup of yogurt sold for $4 and the cost of producing the frozen yogurt averaged $2.50 per cup. Administrative expenses, including Jens salary and expenses for an accountant and two other administrative staff, were estimated at $185,000 in year 2017. Marketing expenses, largely in the form of behind-the-counter workers, in-store posters, and advertising in local newspapers, were projected to be $200,000 in year 2017.

An investment in bricks and mortar was necessary to make and sell the yogurt. Initial specialty equipment and the renovation of an old warehouse building in Lower Downtown (known as LoDo) occurred at the beginning of 2016 and additional equipment needed to make the amount of yogurt forecasted to be sold in 2017 was purchased at the beginning of 2017. As a result, depreciation expenses were expected to be $50,000 in year 2017. Interest expenses were estimated at $15,000 in 2017. The average tax rate was expected to be 25 percent of taxable income.

Tip: Use Excel to set up a 2017 income statement based on the information presented in the case. An example is available in the Week 2 folder to get you started.

A. How many cups of frozen yogurt would have to be sold in order for the firm to reach its projected revenues of $1.1 million?

B. Calculate the dollar amount of EBDAT if Jen and Larrys Frozen Yogurt Company achieves the forecasted $1.1 million in sales for year 2017. What would EBDAT be as a percent of revenues?

C. Jen and Larry believe that under a worst-case scenario, yogurt revenues would be at the 2016 level of $610,000 even after plans and expenditures were put in place to ramp up revenues in year 2017. What would happen to the ventures EBDAT?

D. Jen and Larry also believe that under very optimistic conditions that yogurt revenues could reach $1.5 million in year 2017. Show what would happen to the ventures EBDAT if this were to happen.

E. What are the projected 2017 cash fixed costs (i.e. fixed operating and financing costs) for Jen and Larry? What are their projected variable costs at a revenue of $1.1 million? What is their contribution margin?

F. Calculate the EBDAT breakeven point for year 2017 in terms of survival revenues for Jen and Larrys Frozen Yogurt Company. How many cups of frozen yogurt would have to be sold to reach EBDAT breakeven?

G. Show what would happen to the EBDAT breakeven in terms of survival revenues if the cost of producing a cup of yogurt increased to $2.75 but the selling price remained at $4.00 per cup.

H. How would the EBDAT breakeven change if production costs declined to $2.40 per cup when the yogurt selling price remained at $4.00 per cup?