Consider a simple ice cream stand operation with the following characteristics:

1. You own the stand but hire people to run it for you.
2. The stand is open from 10 AM until 8 PM Monday through Saturday, and noon to 8 PM on Sundays.
3. The stand sells two products: ice cream cones and ice cream bars. You have a cash register that records the sales of each product separately. The ice cream bars come prepackaged and you carry six different kinds, although the costs and selling prices for all types of bars are the same. The cones are made to order by the operator of the stand.

You carry a dozen different varieties of bulk ice cream, three different types of cones, and six different types of toppings from which the cones are made. However, the per unit material costs for each type of ice cream, each type of cone, and each topping are the same.

In addition, the selling price of each cone is the same. That is, each cone contains the same amount of ice cream, one cone, and one topping, all of which cost the same, and so the unit cost and selling price of a cone is the same regardless of what options the customer chooses when building the cone.

You have done some time studies and determined that it takes 50% more labor to make and sell a cone than it does to sell a bar.

4. The only fixed assets of the stand are its one freezer, the stand itself, the cash register, and counters and cabinets. There is room to add one additional freezer, if needed.
5. The operators of the stand are paid by the hour. They turn in time cards each week that show the hours they have worked each day. The stand does require one operator to be on duty whenever the stand is open.

The stand can sell 40,000 units (bars and cones) with one operator on duty. Beyond 40,000 units, you need to have two operators working in the stand during peak demand time, which adds an additional 20 hours per week in staffing time.

This level of staffing is sufficient to handle the maximum capacity of one stand, which is 60,000 units (some combination of bars and cones).

The operators are paid $8 per hour and receive no benefits. Operators are scheduled so one operator never works more than 40 hours per week to avoid overtime.

6. You contract out the accounting and tax return preparation for the stand but manage the promotion yourself. Promotion consists of putting up some signs in the immediate area of the stand and running a few ads in the local newspaper. Your accountant charges you a flat fee by the month for basic accounting services and an additional fixed fee to prepare your tax return. These charges are not related to your volume of activity in any way.
7. Your utilities are mostly fixed but do vary a little based on the number of units you sell because of the need to open and close the freezer more often when more items are sold.
8. The only other costs the stand incurs is an annual business license, the amount of which is fixed per year and gives you the right to do business in the city and miscellaneous expenses. The license cost is not affected by your volume of sales and would not be affected if you expanded your business to a second stand. Miscellaneous expenses are a collection of small expenses that you can assume are fixed.

20. of Revenue and Cost Statistics

Revenue or Cost Item	Value
Selling prices	$1.79 per cone and $1.49 per bar
Material costs	$0.45 per cone and $0.37 per bar. This cost includes ice cream, cones, and toppings and allows for an average amount for waste and spoilage of the ice cream, cones, and toppings.
Wages	$8.00 per hour, maximum 40 hours for one operator
Utilities	$900 per year plus $0.05 per item (bar or cone) sold
Accounting and tax preparation	$500 per year regardless of sales
Depreciation	$500 per year on existing stand and equipment $500 per year for additional stand and equipment
Business license	$850 per year regardless of sales
Miscellaneous	$500 per stand per year

Questions:

1. Calculate the unit contribution margin for bars and cones. Use this information to determine how the operating income for one stand would change if their product mix shifted from 50% bars and 50% cones to 40% and 60% cones with no change in total units sold.

2.Calculate the breakeven point in unit and sales dollars for one stand assuming a 50/50 product mix between bars and cones and a maximum sales volume of 40,000 units.

3. Calculate the breakeven point in units and sales dollars for one stand assuming a 50/50 product mix between bars and cones, a maximum sales volume of 40,000 units, an income tax rate of 30% and a target nt income of $15,000.

4. Calculate the breakeven point in units and sales dollars for two stands assuming 50/50 product mixe between bars and cones and the same operating hours for both stands.

Answer rating: 100% (QA)

1 The unit contribution margin is calculated as follows For bars Price per unit Variable cost per unit Unit contribution margin 149 037 112 For cones 179 045 134 The operating income for one stand wou... View the full answer