Whole Milk Case Study

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1. Using the below assumptions, below are the calculation for breakeven of milkshakes: Assumptions: ➢ The milkshake makers, tables and benches are assumed to last for 3 years, but the refrigerator/freezer and counter tops are assumed to last for 10 years. ➢ The suggested sales prices are used to be competitive with other vendors. ➢ The calculations are done on monthly basis. Calculation of variable cost is as below: Direct Material Cost Information Small Large Whole Milk $15 for a 5 gallon=740 oz. 0.02027 per oz. 0.0405 0.0608 Cream $20 for 1 gallon=128 oz. 0.15625 per oz. 0.3125 0.4688 Sugar $10 for a 15 lb. bag=30 cups 0.33333 per cup 0.1667 0.2500 Premium Vanilla Ice Cream $24 for…show more content…
Of which 308 will be Small milkshakes and 132 will be large milkshakes. 2. Based on built in salary, new calculation for break even milkshakes are as below: Suppose I built in salary for myself of $6,000 per month. So I will have my fixed cost revised. The new fixed cost will be 2,440 + 6,000 = $8,440 per month. Therefore, new breakeven point in units = 8,440 ÷ 5.55 = 1,521 Milkshakes per…show more content…
Of above for the given sales mix I have to sell 980 x 0.70 = 686 small milkshakes and 980 x 0.30 = 294 large milkshakes for earning the salary that I would have earned from my current job. Decision Analysis: The job will give me a static income of $3,000 per month with little growth as per company norms and procedure. While own business will have higher opportunity to earn. The break even analysis shows that in order to earn income more than job, I have to sell more than 980 milkshakes per month (of which 686 will be small milkshakes and 294 will be large milkshakes for given sales mix to achieve break even with current salary built in). If the demand for milkshakes is high and I will be able to sell units more than breakeven. I shall leave the job. Sales mix also plays an important role in earnings. A shift in sales mix from high contribution margin product to low contribution margin product increases the dollar sales required to break-even, while a shift from low contribution margin product to high contribution margin product reduces the dollar sales required to break-even. So if I could sell more of large milkshakes, it will increase the

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