Snowie, owned by Carl and Gordon Rupp, is a company that provides training, equipment, and supplies for operating a shaved ice business. Shaved ice is an ice-based refreshment made by shaving a block of ice into a fluffy, snow-like ice. The product is served in cups with flavored syrups added to the ice. Due to its fine texture, shaved ice absorbs the syrup, making each bite flavorful. Snowie does not sell franchises. It sells a wide array of equipment and supplies, including ice shavers, kiosks, carts, buses, syrups, cups, and other supplies to independent operators.

Part 1: CVP Analysis for a Snowie Kiosk (Chapter 7)

Assume that you are evaluating whether to start a Snowie[1] business. You could operate a shaved ice kiosk at fairs, downtown areas, and other outdoor events. The kiosk is portable with wheels and a hitch. It has plenty of storage place, work area, electrical outlets, lighting, and a water system. The flavored shaved ice, a Snowie, is normally offered in three sizes. For this case, we are going to assume that only one size is offered the large size, 20 oz. The large Snowie sells for $4.00. See Table 1 for a list of all costs related to a large size Snowie.

In this case, use straight-line depreciation with salvage values of zero for both the ice shavers and the flavor station.

Requirements

Specify your assumptions about the following items:

Number of days you anticipate opening the Snowie kiosk per month _______

Number of hours you will work (no wages required) per day ________

Number of hours you will pay an employee to work in the Snowie kiosk per day _____

Is the cost of syrup a variable or fixed cost with respect to the number of Snowies sold? What is the cost of syrup per Snowie? (Use four decimal places in your response and all calculations.)

Is the cost of the worker attending the kiosk a variable or fixed costwith respect to the number of Snowies sold? [Caution give this some thought. Will this cost vary if you sell 10 cones or 60 cones per day?] What is the cost of the worker wages per day and per month?

What is the total variable cost per Snowie (per cup)?

What is the total fixed cost per month to operate the Snowie business?

Calculate the number of Snowies that you need to sell each month to break even.

How many Snowies must be sold to achieve an operating profit of $2,000 per month (before tax)?

Think about the break even and target profit quantities you just calculated. Do you think these quantities are realistic? Discuss and support your answer.

Table 1: Costs

All listed costs relate to the large size Snowie.

Ice per Snowie	$ 0.20
Spoon straw (need one per Snowie)	$ 0.02
Styrofoam cup (need one per Snowie)	$ 0.08
Napkin per sheet (need two per Snowie)	$ 0.01
Servings per gallon of syrup	28
Cost per gallon of syrup (includes concentrate, preservative, and sugar)	$ 4.25
Hourly rate for workers	$ 10.00*
Event registration fee per day	$ 25.00*
Electricity, insurance, maintenance, and permit costs per month	$ 250.00*
Kiosk rental cost per month	$ 650.00*
Purchase cost of two ice shavers (5-year life)	$ 3,180.00
Purchase cost of a flavor station (5-year life)	$ 1,080.00

*Assumption made for this case