THE CASE You plan to open a milkshake shack on the beach of a resort at Gulf Shores, Alabama. You have studied existing restaurants, read industry reports, and have done some research on expected minimum costs to be incurred in operating the business. A unique feature of your milkshakes is that you will serve them with flavored straws that match the flavor of the chosen milkshakes by customers. Your research embeds the following assumptions: Initial sales prices of milkshakes ($7.00 for small, and $10.00 for large) Cost of materials needed to make milkshakes: DIRECT MATERIAL INGREDIENTS Large (12 oz. size) (need 3 oz. of milk) Small (8 oz. size) Whole Milk ($15 for a 5 gallon-740 oz.) (need 2 oz. of milk) Cream ($20 for 1 gallon-128 oz.) Sugar ($10 for a 15 lb. bag-30 cups) (need 2 oz. of cream) (need 1/2 cup of sugar) (need 3 oz. of cream) (need % cup of sugar) Premium Vanilla Ice Cream ($24 for 600 oz.) Flavorings (need 6 oz.) 25 per shake .75 per straw (need 9 oz. of cream) .40 per shake .75 per straw 9 Flavored specialty straws Cups (500 8 oz. cups @ a cost of $200) Cups (500 12 oz. cups @ a cost of $250) 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 1041,080 Annual insurance: $600 a year Sign: use your marketing knowledge to think of a good name- $100 Total Fixed Costs $4,780 for which you 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.