Problem 3 Matt Schmidt has spent $750 for a tent, table, and chairs for his lemo

Question

Problem 3 Matt Schmidt has spent $750 for a tent, table, and chairs for his lemonade stand. He figures he can sell a glass of lemonade in the park to Little League players for $.75. His cost per drink is estimated to be $.20. He also has to cover napkins, cups, and other variable costs estimated to be $.05 per glass of lemonade sold. He will open his business on June 1 (a Monday) and be open five days each week for the summer months of June-August. He will pay his parents $2 each day to transport him and his materials to and from the park. Matt projects daily sales of 100 glasses of lemonade. Required 1. What is his contribution margin? 2. What is his breakeven point (in units), given that he wants to cover all of his costs? 3. What day of the summer will he break even?

Explanation / Answer

Sale Price 0.75 Variable Cost 0.2 Other Variable Cost 0.05 Transportation cost (2/100) 0.02 Contribution Margin 0.48 Break even Point Fixed Cost 750 Contribution per unit 0.48 Break even Quantity 1563 Units Break Even In Days Contribution margin per unit 0.48 Expected Sales 100 Units Per Day Contribution 48 Fixed Cost 750 Break even days 15.625 Means 16 Days

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