CVP Problem

Business Description:

After taking business classes, Jake, an avid dog-lover, decided to start selling unique pet supplies at trade shows. He has two products:

Product 1: "Launch-it"- a tennis ball thrower that will sell for $10.

Product 2: "Treat-time"- an automatic treat dispenser that releases a treat when the dog places his paw on the pedal. The treat dispenser will sell for $30.

Costs: Jake has hired an employee to work the trade show booths. The work contract is $1,000 per month plus a commission equal to 10% of revenue. Jake will also spend $500 per month on trade-show entry fees. Jake is purchasing the products from a supplier in Mexico. Launch-its cost $1 each; Treat-times cost $7 each. Shipping and handling on the Launch-its will cost $2 each; Shipping and handling on the Treat-times, which are heavier, will cost $8 each. The shipping and handling costs will be paid by Jake, not the customer.

Assume Jake expects to sell 200 Launch-its and 100 Treat-times during his first month of operations (June).

Jake's financial goal is to earn an operating income of $8,000 per month. He believes volume may grow at a rate of 5% a month.

**Tax Rate 35%

Directions:

1a) Complete the input area with the product and cost assumptions.

1b) Build a model to calculate the breakeven for each product separately, both in units and dollars (make the assumption that the other product does not exist).

1c) Create a proforma income statment with a column for each product and a total column. Product columns should include revenue, variable costs, and contribution margin. The total column will show the fixed costs, operating income, taxes, and net income. Base this statement on the original product assumptions.