In: Accounting
Your selling three different kinds of milkshakes (whole milk, almond milk and coconut milk) that are all the same size, 20 ounces. They will sell for $8, $9 and $10 respectively. Customers can choose from a variety of 10 different flavorings (vanilla, chocolate, salted caramel, hazelnut, strawberry, marionberry, blueberry, toffee, blue cheese and horseradish). Following is the cost of materials for each of the different kinds of milkshakes:
Ingredients Whole Almond Coconut
Milk $ 1.30 $ 1.65 $ 1.75
Cream ($25 for 1 gallon = 128 oz.) (need 3 oz. for all kinds of shakes)
Tillamook Vanilla Ice Cream ($30 for 500 oz.) (need 10 oz. for all kinds of shakes)
Pure Cane Sugar ($12 for a 10 lb. bag=20 cups) (need ½ cup for all kinds of shakes)
Flavors $0.45 per shake for all kinds of shakes
Cups (1,000 20 oz. cups @ a cost of $500)
Employees
You will need to hire two part-time employees whom you will pay $1,200 per month (each) plus additional taxes of $100 per month (each).
Other costs
Food cart rental - $500 per month plus 5% of gross sales
Improvements to food cart - $15,000 (to be depreciated over 10 years on the straight-line basis)
Cleaning and supplies - $50 per month
Equipment - $ 2,500 (depreciated over 5 years on the straight-line basis with no salvage value)
Annual insurance - $1,200
Annual marketing expense - $ 2,000
Key assumptions
Udderly Delish is open year-round from 2 p.m. to 8 p.m. every day (except 7 days of holiday)
The income tax rate is 25%
Customers can only choose one flavor per shake.
The projected sales mix is 50% (whole), 20% (almond) and 30% (coconut).
Calculate the annual break-even point (in milkshakes).
How many coconut milkshakes need to be sold to reach the total break-even point?
How many total milkshakes will need to be sold to make an after-tax profit of $50,000?
Assuming a total of 15,000 milkshakes are sold, what is the after-tax profit? Please draft a full contribution margin income statement.
If you had the chance to purchase the food cart, instead of renting it, for $ 75,000 (depreciated over 5 years on the straight-line basis with no salvage value), how many milkshakes would you need to sell per year to make this option MORE profitable than the option to rent it?
Whole | Almond | Coconut | Total | ||
Sale Price | 8 | 9 | 10 | ||
Variable Cost | |||||
Milk | 1.30 | 1.65 | 1.75 | ||
Cream | (3/128)*25 | 0.59 | 0.59 | 0.59 | |
Tilamook | (10/500)*30 | 0.60 | 0.60 | 0.60 | |
Cane Sugar | (0.5.20)*12 | 0.30 | 0.30 | 0.30 | |
Flavours | 0.45 | 0.5 | 0.45 | 0.45 | |
Cup | 500/1000 | 0.5 | 0.50 | 0.50 | |
Other Cost (Food Cart Rental) |
5% of Sales | 0.40 | 0.45 | 0.50 | |
Total Variable cost/unit | 4.14 | 4.54 | 4.69 | ||
Contribution/Unit | Sales- Variable Cost | 3.86 | 4.46 | 5.31 | |
Sale Ration | 50% | 20% | 30% | ||
Contribution Mix |
Contribuion/unit* Sale Ration |
1.93 | 0.891 | 1.59 | 4.42 |
Fixed Cost Per Month | ||
Employee Salry | (1200+100)*2 | 2600 |
Fod CArt Rental | 500 | |
Depreciation on improvement | 15000/(10*12) | 125 |
Cleaning & Supplies | 50 | |
Depreciation on equipment | 2500/(12*5) | 41.67 |
Insurance | 1200/12 | 100 |
Marketing exp | 2000/12 | 166.67 |
Total Fixed Cost per month | 3583.33 |
Fixed Cost for the year = 3583.33*12 = 43000
Breakeven pint = Fixed Cos/Contribution per unit
= 43000/4.42 = 9731 Units
Whole milk = 9731*50% = 4866 units
Almond = 9731*20% = 1946 units
Coconut = 9731 * 30% = 2919 units
for having profit of 50000 after Tax profit BEP = Fixed cost+ (50000/75%)/ Contributionper unit
= 43000+66667/4.42 = 24811 units
Whole milk = 50% = 12406 units
Almond = 20% = 4962 units
Coconut =30% = 7443 units
For 15000 Units Contribution Satement
Sale Ratio | 50% | 20% | 30% | |
Sale Mix | 15000* Sale Ratio | 7500 | 3000 | 4500 |
Sales | Sale Mix * Sale Price ?unit as er aboe table | 60000 | 27000 | 45000 |
Varible Cost | Sale Mix* Total variable Cost as in abve table | 31020 | 13608 | 21087 |
Contribtion | Sale-Variable Cost | 28980 | 13393 | 23913 |
SO Total Cotribtion =66286
Fixed Cost for the year = 43000
Profit = 23286
tax (25%)= 5821
PAT = 17465
4. if cart is purchased
Whole | Almond | Coconut | Total | ||
Sale Ratio | 50% | 20% | 30% | ||
Sale | Sale * Sale Price | 8.00 | 9.00 | 10.00 | |
Varible Cost | |||||
Milk | 1.30 | 1.65 | 1.75 | ||
Cream | (3/128)*25 | 0.59 | 0.59 | 0.59 | |
Tilamook | (10/500)*30 | 0.60 | 0.60 | 0.60 | |
Cane Sugar | (0.5/20)*12 | 0.30 | 0.30 | 0.30 | |
Flavours | 0.45 | 0.45 | 0.45 | ||
Cup | 500/1000 | 0.50 | 0.50 | 0.50 | |
Total Vaiable Cost | 3.74 | 4.09 | 4.19 | ||
Contribution | 4.26 | 4.91 | 5.81 | ||
Contriution Mix | 2.13 | 0.98 | 1.74 | 4.86 | |
Fixed Cost per Month | |||||
Employees salary | 2*(1200+100) | 2,600.00 | |||
Depreciation on Food Cart | 75000/(5*12) | 1,250.00 | |||
Improvement to food cart | (15000/(12*10) | 125.00 | |||
Cleaning & Supplies | 50.00 | ||||
Equipment Depecialtiom | (2500/(12*5)) | 41.67 | |||
Insurance | 1200/12 | 100.00 | |||
Marketing Expesnse | 2000/12 | 166.67 | |||
Total Fixed Cost | 4,333.33 | ||||
Whole | Almond | Coconut | |||
Break even point /Unit | 4333.33*12)/4.86 | 10,699.58 | 5,349.79 | 2,139.92 | 3,209.87 |