Your selling three different kinds of milkshakes whole milk

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?

Solution

Other Cost

(Food Cart Rental)

Contribuion/unit*

Sale Ration

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

SO Total Cotribtion =66286

Fixed Cost for the year = 43000

Profit = 23286

tax (25%)= 5821

PAT = 17465

4. if cart is purchased