Part 1 Sunny's Ice Cream is owned by Jim and Jana Green. They are considering expanding their business by getting into the sno-cone business. Sno-cones are an ice-based refreshment made by shaving a block of crushed ice into a fluffy snowball-like shape and adding flavored syrups. Because of its fine texture, the shaved ice absorbs the syrup to make it flavorful. The Green's would run the sno-cone business in a different format- they would be operating a mobile kiosk [on a cart] such that they could sell at fairs, carnivals, downtown events, and other outdoor venues [after the coronavirus pandemic subsides of course!] For purposes of this case, you can assume that they would be selling only one size of sno-cone- the large 20 oz. variety. Here is other relevant info.: Selling Price $ 4.00 Ice cost .20 per unit Spoon or straw .02 per unit Styrofoam cup & napkin .10 per unit Cost per gallon of syrup $ 4.50 Servings per gallon of syrup 30 Hourly rate for worker $ 10.00 Purchase cost of shaving machine $ 4,260 [includes flavor station-expected to last 5 years] Electricity, Insurance, Maintenance etc. $ 900 per month # of days per month expected to be open 25 # of hours open each day 8 [your employee will be paid for all 8 hours- you will cover for him/her during the 30-minute lunch break] 1. Is the cost of the worker employee) manning the kiosk and serving sno-cones a variable cost or a fixed cost with respect to the number of sno-cones served? Briefly explain. In this case the cost of the employee would be a fixed cost. This is because they are paid an hourly wage of $10 so regardless of how many sno-cones they sell they will be paid $10. 2. What is your total cost [direct labor] of the worker's wages for the month? To find the total cost of direct labor for the month you would do wage * days open during the month * number of hours the cart operates a day. So: $10 (wage) * 25 (days open) * 8 (hours operate in a day) which gives you total costs of $2000 for the month. 3. What are the total fixed costs per month to operate the sno-cone kiosk (mobile cart]? Assume the use of straight-line depreciation (same every month) for the shaving machine/flavor station. The fixed costs would be the depreciation costs + the cost of electricity, insurance, and maintenance + workers wages. Which would be Deprecation cost of $71 (4260/60) + $900 (given for electricity, insurance, and maintenance) + monthly employee costs of $2000 which comes out to $2971. 4. What is the total variable cost per sno-cone? The variable cost per sno-cone would be the cost of ice + cost of spoon or straw + cost of Styrofoam cup and napkin + cost of syrup per sno-cone. So we get $0.20 ice costs) + $0.02 (per straw or spoon) + $0.10 (Styrofoam cup & napkin) + $0.15 (syrup per cone... $4.50 cost of gallon of syrup/30 servings per gallon) so we get total variable costs of $0.47 per sno-cone. 5. Calculate the number of sno-cones you must sell each month to breakeven. I did selling price per unit variable cost per unit (4-47=3.53) which gave me contribution margin per unit. Next I did FC/CMu which was 2971/3.53=841.64 or 842 unit sold to breakeven. 6. Complete the contribution margin income statement to support your answer to question #5: Sales | Less variable costs | Contribution Margin Less fixed costs | Operating Income $ 4*842= 3368 $.47* 842= 397 $ 2971 $ 2971 $ 0 7. Calculate the number of sno-cones you must sell each month to earn an operating income [before tax] of $ 2,000 per month. FC+ Target Income/ CM. 2971+2000/ 3.53= 1408.22 so if they want an income of $2000 before tax their breakeven sales units would be 1409 units. 8. Based on your answers to question #5 - #7 above, do you think this is a realistic business venture? Why or why not? I would say that this is a realistic business model because the breakeven level in units for a $2000 profit is 1409 units. Which means that they would need to sell 7 sno-cones per hour to meet their breakeven number (1409/25= 56.36/8= 7.045). Selling 7 cones per hours during peak summer hours seems very manageable. Now assume the same information as listed above in part 1 except that your supplier increases the cost of a gallon of flavor syrup from $ 4.50 to $ $ 6.30, your electricity, maintenance, etc. costs increase by 15%, and you decide to increase the price of a sno-cone to $4.25 each. Calculate your monthly breakeven point in sales dollars (not units). Is this amount higher or lower than your amount in part 1 and by how much? The original BE sales are $3367 which I got from FC/CMR=2971/.8825. For the new data I got BE sales are $3549 which again I got from FC/CMR= 3106/.8752. So the BE point in sales dollars is higher by $182 which the changes. Part 3. You have been approached by the organizers of the Raleigh Rally event to be held as part of Memorial Day about bringing in your mobile sno-cone kiosk. You will be given free advertising, electricity, etc. for this one-day event. Assume that you would need 2 employees rather than one [along with yourself] and the worker wages would amount to $ 11.50 per hour rather than $10. You have been asked to sell your sno-cones for $3.00 each rather than $4.00, and you believe you could realistically sell between 200-250 sno-cones on this one day. Assume you have no other plans for that day and that all other information from part 1 stays the same. Do you accept this special offer? Why or why not? [Explain & show work] Part 1 Sunny's Ice Cream is owned by Jim and Jana Green. They are considering expanding their business by getting into the sno-cone business. Sno-cones are an ice-based refreshment made by shaving a block of crushed ice into a fluffy snowball-like shape and adding flavored syrups. Because of its fine texture, the shaved ice absorbs the syrup to make it flavorful. The Green's would run the sno-cone business in a different format- they would be operating a mobile kiosk [on a cart] such that they could sell at fairs, carnivals, downtown events, and other outdoor venues [after the coronavirus pandemic subsides of course!] For purposes of this case, you can assume that they would be selling only one size of sno-cone- the large 20 oz. variety. Here is other relevant info.: Selling Price $ 4.00 Ice cost .20 per unit Spoon or straw .02 per unit Styrofoam cup & napkin .10 per unit Cost per gallon of syrup $ 4.50 Servings per gallon of syrup 30 Hourly rate for worker $ 10.00 Purchase cost of shaving machine $ 4,260 [includes flavor station-expected to last 5 years] Electricity, Insurance, Maintenance etc. $ 900 per month # of days per month expected to be open 25 # of hours open each day 8 [your employee will be paid for all 8 hours- you will cover for him/her during the 30-minute lunch break] 1. Is the cost of the worker employee) manning the kiosk and serving sno-cones a variable cost or a fixed cost with respect to the number of sno-cones served? Briefly explain. In this case the cost of the employee would be a fixed cost. This is because they are paid an hourly wage of $10 so regardless of how many sno-cones they sell they will be paid $10. 2. What is your total cost [direct labor] of the worker's wages for the month? To find the total cost of direct labor for the month you would do wage * days open during the month * number of hours the cart operates a day. So: $10 (wage) * 25 (days open) * 8 (hours operate in a day) which gives you total costs of $2000 for the month. 3. What are the total fixed costs per month to operate the sno-cone kiosk (mobile cart]? Assume the use of straight-line depreciation (same every month) for the shaving machine/flavor station. The fixed costs would be the depreciation costs + the cost of electricity, insurance, and maintenance + workers wages. Which would be Deprecation cost of $71 (4260/60) + $900 (given for electricity, insurance, and maintenance) + monthly employee costs of $2000 which comes out to $2971. 4. What is the total variable cost per sno-cone? The variable cost per sno-cone would be the cost of ice + cost of spoon or straw + cost of Styrofoam cup and napkin + cost of syrup per sno-cone. So we get $0.20 ice costs) + $0.02 (per straw or spoon) + $0.10 (Styrofoam cup & napkin) + $0.15 (syrup per cone... $4.50 cost of gallon of syrup/30 servings per gallon) so we get total variable costs of $0.47 per sno-cone. 5. Calculate the number of sno-cones you must sell each month to breakeven. I did selling price per unit variable cost per unit (4-47=3.53) which gave me contribution margin per unit. Next I did FC/CMu which was 2971/3.53=841.64 or 842 unit sold to breakeven. 6. Complete the contribution margin income statement to support your answer to question #5: Sales | Less variable costs | Contribution Margin Less fixed costs | Operating Income $ 4*842= 3368 $.47* 842= 397 $ 2971 $ 2971 $ 0 7. Calculate the number of sno-cones you must sell each month to earn an operating income [before tax] of $ 2,000 per month. FC+ Target Income/ CM. 2971+2000/ 3.53= 1408.22 so if they want an income of $2000 before tax their breakeven sales units would be 1409 units. 8. Based on your answers to question #5 - #7 above, do you think this is a realistic business venture? Why or why not? I would say that this is a realistic business model because the breakeven level in units for a $2000 profit is 1409 units. Which means that they would need to sell 7 sno-cones per hour to meet their breakeven number (1409/25= 56.36/8= 7.045). Selling 7 cones per hours during peak summer hours seems very manageable. Now assume the same information as listed above in part 1 except that your supplier increases the cost of a gallon of flavor syrup from $ 4.50 to $ $ 6.30, your electricity, maintenance, etc. costs increase by 15%, and you decide to increase the price of a sno-cone to $4.25 each. Calculate your monthly breakeven point in sales dollars (not units). Is this amount higher or lower than your amount in part 1 and by how much? The original BE sales are $3367 which I got from FC/CMR=2971/.8825. For the new data I got BE sales are $3549 which again I got from FC/CMR= 3106/.8752. So the BE point in sales dollars is higher by $182 which the changes. Part 3. You have been approached by the organizers of the Raleigh Rally event to be held as part of Memorial Day about bringing in your mobile sno-cone kiosk. You will be given free advertising, electricity, etc. for this one-day event. Assume that you would need 2 employees rather than one [along with yourself] and the worker wages would amount to $ 11.50 per hour rather than $10. You have been asked to sell your sno-cones for $3.00 each rather than $4.00, and you believe you could realistically sell between 200-250 sno-cones on this one day. Assume you have no other plans for that day and that all other information from part 1 stays the same. Do you accept this special offer? Why or why not? [Explain & show work]