Rationale: U3.4 - Lemonade Stand Determining a price is a lot more difficult than simply guessing...

     

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Rationale: U3.4 - Lemonade Stand Determining a price is a lot more difficult than simply guessing what you think would be a good amount of money. It is a complex process that involves a lot of hard work and thinking. On this project, you will get practice calculating costs and making decisions when it comes to pricing. Background: As an entrepreneur, you have decided to open your own business this summer. You've gotten permission from the City of London to set up a booth next to a nearby soccer field in order to offer refreshments to players and spectators. You are able to run your business for the 62 days of July and August. You have decided to make your featured product handmade lemonade. You obtained a recipe online and got to work doing research and preparing for your summer. After a lot of work, you have come up with the following data points. Costs -> A table costs you $57.81 A 4L distilled water costs you $1.00 -> -> -> A lemon juicer costs $8.89 A box of 100 cups with sippy lids is $10.00 A cooler costs $72.69 A bag of 10 lemons costs you $5.00 ->> Signage costs you $21.54 A 5kg bag of sugar costs you $10.00 A 2.5L pitcher costs $6.37 Lemonade Recipe 1) 2) 3) 2L distilled water 500mL fresh squeezed lemon juice 500g sugar Combine in a pitcher and stir until sugar is dissolved. Makes 2.5L You agreed to pay your friend $100.00 for the summer to help you during their free time and to provide ice cubes from their parent's freezer Additional Information Each cup can hold 250mL of juice + ice 1 lemon gives you 50 mL of juice You figure you'll need 2 pitchers. 1 to serve to customers and one to prepare the next batch on busy days. Follow the steps below to determine the profitability of your business. Level 1 Step 1- Determining costs Determined and classified Step 2 - Calculating product cost and selling price Step 3 - Determining markup, margins and profit Step 4 - Analysis Step 5- Taking it further costs with many errors 5 5.5 Calculated product cost and selling price with many errors 5 5.5 Determined markup. margins and profit with many errors 5 5.5 Analysis is thorough, and shows a low level of understanding of pricing concepts 5 5.5 Able to source goods and apply concepts with a low degree of efficiency 5 5.5 Level 2 Determined and classified costs with some errors 6 6.5 Calculated product cost and selling price with some errors 6 6.5 Determined markup. margins and profit with some errors 6 6.5 Analysis is thorough, and shows a limited level of understanding of pricing concepts 6 6.5 Able to source goods and apply concepts with a limited degree of efficiency 6 6.5 Level 3 Determined and classified costs with few errors 7 7.5 Calculated product cost and selling price with few errors 7 7.5 Determined markup. margins and profit with few errors 7 7.5 Analysis is thorough, and shows a good level of understanding of pricing concepts 7 7.5 Able to source goods and apply concepts with efficiency 7 7.5 Level 4 Determined and classified costs with no errors 8 9 10 Calculated product cost and selling price with no errors 8 9 10 Determined markup, margins and profit with no errors 8 9 10 Analysis is thorough, and shows a high level of understanding of pricing concepts 8 9 10 Able to source goods and apply concepts with a high degree of efficiency 8 9 10 - Step 1 Determine Your Costs (_ /10) Inputs Cost (per unit) Category (fixed/variable) a) Before doing the calculations, estimate what you think is a fair price for a cup of lemonade Step 2 - Set a Selling Price ( /10) a) Determine the product cost of 1 pitcher of lemonade Item Unit Size Amount Needed/Pitcher # of units required/pitcher Unit Cost Item Cost/Pitcher b) Determine the product cost of 1 glass of lemonade c) What are the other variable costs you will need to include in your pricing calculation? d) Determine the profit you intend to make per cup of lemonade? Remember, this will be used as a way to make money and cover all of the costs not included already. e) What is the selling price of a cup of your lemonade? Inputs product cost/glass Other variable costs Amount + Intended profit/glass Selling Price $ This is the amount added by seller Step 3 - Determine Your Profitability ( /10) a) Using your newly determined product cost/glass, your other variable costs and your intended profit, determine the markup on a glass of lemonade (%). b) Using your newly determined selling price and the product cost/glass, determine the profit margin on a glass of lemonade (%). c) Using your total of all of your variable costs/glass of lemonade and the selling price, calculate the gross profit per glass of lemonade ($) d) List of your fixed costs and total them. Fixed Cost Amount Total Fixed Costs $ e) Using your fixed costs and gross profit, calculate your break even point for your lemonade stand (# of glasses sold) f) If you sell the exact number of glasses that you need to to break even, how much money will you have brought in in total (revenue)? g) If you sell the exact number of glasses that you need to to break even, how much money will you have spent on product costs? Step 4 - Analysis ( /10) a) Compare your selling price to your estimate from step 1. How close are they? Do you feel that the selling price you calculated during step 2 is something that consumers will want to pay? b) One way to increase margins and profits is by cutting costs. Reflecting back on your costs and doing some additional research, what are some possible ways for you to cut your variable costs? (Include a link to any sources you used) c) Based on the fact that your business can only operate for 62 days, how many glasses per day would you have to sell in order to hit your break even point? Do you think this is realistic? Why or why not? What non-business events could get in your way? d) Based on your pricing, product and location, describe the target market for your business. Step 5 - Taking it Further /10) e) Use the internet to find one pre-packaged snack you can sell to accompany your lemonade (e.g. snack sized chips, candy bars, fruit) i) Determine the product cost of one unit ii) iii) Identify any other variable costs that may accompany this product. Choose an intended profit for this product and calculate the selling price iv) Calculate your markup, margin and gross profit for each unit sold v) Explain how a new product will help your business' break even point i) 11) III) iv) v) Rationale: U3.4 - Lemonade Stand Determining a price is a lot more difficult than simply guessing what you think would be a good amount of money. It is a complex process that involves a lot of hard work and thinking. On this project, you will get practice calculating costs and making decisions when it comes to pricing. Background: As an entrepreneur, you have decided to open your own business this summer. You've gotten permission from the City of London to set up a booth next to a nearby soccer field in order to offer refreshments to players and spectators. You are able to run your business for the 62 days of July and August. You have decided to make your featured product handmade lemonade. You obtained a recipe online and got to work doing research and preparing for your summer. After a lot of work, you have come up with the following data points. Costs -> A table costs you $57.81 A 4L distilled water costs you $1.00 -> -> -> A lemon juicer costs $8.89 A box of 100 cups with sippy lids is $10.00 A cooler costs $72.69 A bag of 10 lemons costs you $5.00 ->> Signage costs you $21.54 A 5kg bag of sugar costs you $10.00 A 2.5L pitcher costs $6.37 Lemonade Recipe 1) 2) 3) 2L distilled water 500mL fresh squeezed lemon juice 500g sugar Combine in a pitcher and stir until sugar is dissolved. Makes 2.5L You agreed to pay your friend $100.00 for the summer to help you during their free time and to provide ice cubes from their parent's freezer Additional Information Each cup can hold 250mL of juice + ice 1 lemon gives you 50 mL of juice You figure you'll need 2 pitchers. 1 to serve to customers and one to prepare the next batch on busy days. Follow the steps below to determine the profitability of your business. Level 1 Step 1- Determining costs Determined and classified Step 2 - Calculating product cost and selling price Step 3 - Determining markup, margins and profit Step 4 - Analysis Step 5- Taking it further costs with many errors 5 5.5 Calculated product cost and selling price with many errors 5 5.5 Determined markup. margins and profit with many errors 5 5.5 Analysis is thorough, and shows a low level of understanding of pricing concepts 5 5.5 Able to source goods and apply concepts with a low degree of efficiency 5 5.5 Level 2 Determined and classified costs with some errors 6 6.5 Calculated product cost and selling price with some errors 6 6.5 Determined markup. margins and profit with some errors 6 6.5 Analysis is thorough, and shows a limited level of understanding of pricing concepts 6 6.5 Able to source goods and apply concepts with a limited degree of efficiency 6 6.5 Level 3 Determined and classified costs with few errors 7 7.5 Calculated product cost and selling price with few errors 7 7.5 Determined markup. margins and profit with few errors 7 7.5 Analysis is thorough, and shows a good level of understanding of pricing concepts 7 7.5 Able to source goods and apply concepts with efficiency 7 7.5 Level 4 Determined and classified costs with no errors 8 9 10 Calculated product cost and selling price with no errors 8 9 10 Determined markup, margins and profit with no errors 8 9 10 Analysis is thorough, and shows a high level of understanding of pricing concepts 8 9 10 Able to source goods and apply concepts with a high degree of efficiency 8 9 10 - Step 1 Determine Your Costs (_ /10) Inputs Cost (per unit) Category (fixed/variable) a) Before doing the calculations, estimate what you think is a fair price for a cup of lemonade Step 2 - Set a Selling Price ( /10) a) Determine the product cost of 1 pitcher of lemonade Item Unit Size Amount Needed/Pitcher # of units required/pitcher Unit Cost Item Cost/Pitcher b) Determine the product cost of 1 glass of lemonade c) What are the other variable costs you will need to include in your pricing calculation? d) Determine the profit you intend to make per cup of lemonade? Remember, this will be used as a way to make money and cover all of the costs not included already. e) What is the selling price of a cup of your lemonade? Inputs product cost/glass Other variable costs Amount + Intended profit/glass Selling Price $ This is the amount added by seller Step 3 - Determine Your Profitability ( /10) a) Using your newly determined product cost/glass, your other variable costs and your intended profit, determine the markup on a glass of lemonade (%). b) Using your newly determined selling price and the product cost/glass, determine the profit margin on a glass of lemonade (%). c) Using your total of all of your variable costs/glass of lemonade and the selling price, calculate the gross profit per glass of lemonade ($) d) List of your fixed costs and total them. Fixed Cost Amount Total Fixed Costs $ e) Using your fixed costs and gross profit, calculate your break even point for your lemonade stand (# of glasses sold) f) If you sell the exact number of glasses that you need to to break even, how much money will you have brought in in total (revenue)? g) If you sell the exact number of glasses that you need to to break even, how much money will you have spent on product costs? Step 4 - Analysis ( /10) a) Compare your selling price to your estimate from step 1. How close are they? Do you feel that the selling price you calculated during step 2 is something that consumers will want to pay? b) One way to increase margins and profits is by cutting costs. Reflecting back on your costs and doing some additional research, what are some possible ways for you to cut your variable costs? (Include a link to any sources you used) c) Based on the fact that your business can only operate for 62 days, how many glasses per day would you have to sell in order to hit your break even point? Do you think this is realistic? Why or why not? What non-business events could get in your way? d) Based on your pricing, product and location, describe the target market for your business. Step 5 - Taking it Further /10) e) Use the internet to find one pre-packaged snack you can sell to accompany your lemonade (e.g. snack sized chips, candy bars, fruit) i) Determine the product cost of one unit ii) iii) Identify any other variable costs that may accompany this product. Choose an intended profit for this product and calculate the selling price iv) Calculate your markup, margin and gross profit for each unit sold v) Explain how a new product will help your business' break even point i) 11) III) iv) v)