The case assumes students will open a milkshake shack on the beach of Muscat. A unique feature
Question:
The case assumes students will open a milkshake shack on the beach of Muscat. A unique feature of my milkshakes is that I will serve them with flavored straws that match the flavor of the chosen milkshakes by customers. My research embeds the following assumptions:
Sales prices of milkshakes ($7.00 for small, and $10.00 for large)
Cost of materials needed to make milkshakes:
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Fixed costs:
Shack rental: $500 a month
Cleaning and other miscellaneous supplies: $100 a month
Equipment: Industrial Milk Shake Maker: $72 per machine x 10 machines=$720
Equipment: Industrial Refrigerator/freezer: $480
Countertops: $1,200
Tables and benches for customers to sit outside: $108 per bench-set x 10=$1,080
Annual insurance: $600 a year
Sign: use your marketing knowledge to think of a good name= $100
Total Fixed Costs = $4,780 for which students are assumed to take out a non-owner loan. A self- amortizing loan is assumed to be obtained from a bank, and carries an annual interest rate of 6% payable over 2 years with monthly payments (each monthly payment consists of both principal and interest).
Employees:
Two part-time employees: with each receiving a monthly salary of $800 per month (including taxes and benefits).
Other costs:
10% of gross sales must be given to resort where shack will be located on its premises.
Owner’s capital will be used to cover direct materials’ costs.
REQUIREMENTS OF THE CASE
In order to answer the questions below, you will need to make assumptions, and add/change fixed and variable costs (please clearly indicate all assumptions made).
1- Using the above information, determine the number of milkshakes you will need to sell to break even. In order to do this, you will need to set a sales price as well as classify the above costs into fixed or variable. (Hint: keep all costs on either a weekly, monthly or yearly basis throughout your analysis).
2- Now build-in a salary for yourself, and determine the amount of milkshakes you will need to sell to break even.
3- Should you leave your job to open the milkshake shack?
Human Resource Management
ISBN: 978-0538453158
13th Edition
Authors: Robert L. Mathis, John H. Jackson