Now a days you can see young people are more and more into the idea of...

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Now a days you can see young people are more and more into the idea of entrepreneurship. It could be the lifestyle, freedom at workplace, the flexibility in the working hours, or the freedom of controlling your own finances. Eventually many make the decision every year to leave their job to set up their own dream business venture. Today it is your turn to decide, should you quit your job and take on the below business opportunity or not? The uncertainty involved in a decision like that is part of the risk that you as an intrapreneur will take when you decide to start your own business, it might be scary, but it is fun. The uncertainty involved in making the decision about profit, sales volume, cost, etc. should not hold you back and prevent you from moving forward, an educated risk based on estimation known as CVP analysis will help you in studying your business opportunity. You have the opportunity to open a Smoothy booth on the beautiful city walk of Dubai. You and your friend studied the existing market and done some research on the costs required to be incurred and operating the business. A unique feature that you will be offering to your client is a Smoothie served in an edible cup. Your research outcomes came as follow: To penetrate the market, you believe that a price of 25.00 AED per smoothy is appropriate. The cost o materials and ingredients to prepare the smoothies: . Ingredients Milk (20 AED for 1 gallon) Plain yogurt (12AED for 2kg) Sugar (30 AED for 10kg) Fruits assorted (100AED for Skg) . Edible cups (2AED per cup) Straws (20 AED for 500) Initial Costs: Equipment: Smoothie blender: 1080 AED per machine x 3 machines $3240 expected life is 2 years Equipment: Refrigerator/freezer: AED 2400. Expected life is 10 years. Tables for customers to sit outside: 540 per set x 5- 2700AED. Expected life is 3 years. Amount needed per cup 80 gm per smoothie 80 gm per smoothie 8 gm per smoothie 80 gm per smoothie 1 cup per smoothie 1 pcs per smoothie Countertops: 1200AED. Expected life is 10 years Booth rental: 2000AED a month Cleaning and other miscellaneous supplies: 200AED a month Sign for the booth 440 AED Total Initial Costs 12,180AED. Between you and your friend and a support from your parents you managed to have the required fixed cost covered for the first 3 months. Total investments by owners 60,000 AED. Employees: To run the business, you and your partner will take turns working with two other part-time employees, the monthly salary for each will be 1,200AED per month. Other costs: Direct materials costs will be covered by the owner's capital. Required: To answer the questions below, you will need to make assumptions, and add/change fixed and variable costs (please clearly indicate all assumptions made). 1) Using the information above you need to determine how many smoothies you will need to sell to break even. (For simplicity keep all costs on monthly basis throughout your analysis). 2) How much salary can you take for yourself and your partner friend and how many smoothies you need to sell to break even. 3) Should you leave your job to open the Smoothie shack? 3) Should you leave your job to open the Smoothie shack? ANSWERS TO THE CASE Fixed costs: those that stay the same when the volume of activity changes Monthly fixed costs Total monthly fixed cost Variable Costs per unit: Variable costs: those that vary in accordance with the volume of activity Ingredient Milk (20 AED for 1 gallon) Plain yogurt (12AED for 2kg) Sugar (30 AED for 10kg) Fruits assorted (100AED for 5kg) Edible cups (2AED per cup) Straws (20 AED for 500) Total Variable cost/smoothie 1 gal=3,785.41 g wt. Amount Amount needed/cup 100 ml per smoothie 80 gm per smoothie 8 gm per smoothie 80 gm per smoothie 1 cup per smoothie 1 pcs per smoothie Cost per cup Sales price per unit Variable cost per unit Contribution margin per unit Total Fixed costs Breakeven point-FC/CM 1) For your smoothie booth to break even you will need to sell. 2) If you decide to add a salary for you and your partner of . your fixed cost will increase by New fixed cost: New BE- Statement of income at breakeven: (no owners allowance) Total Sales @25 Total Variable cost@ Contribution margin Total Fixed costs Net income AED monthly smoothies per month Tital Sales @25 Total Variable cost @ Contribution margin Statement of income at new breakeven point: (with owners' salaries) Total Fixed costs (with salaries) Net income month. 3) Should you leave your job to open the Smoothie shack? smoothies a month. a month each, then Now a days you can see young people are more and more into the idea of entrepreneurship. It could be the lifestyle, freedom at workplace, the flexibility in the working hours, or the freedom of controlling your own finances. Eventually many make the decision every year to leave their job to set up their own dream business venture. Today it is your turn to decide, should you quit your job and take on the below business opportunity or not? The uncertainty involved in a decision like that is part of the risk that you as an intrapreneur will take when you decide to start your own business, it might be scary, but it is fun. The uncertainty involved in making the decision about profit, sales volume, cost, etc. should not hold you back and prevent you from moving forward, an educated risk based on estimation known as CVP analysis will help you in studying your business opportunity. You have the opportunity to open a Smoothy booth on the beautiful city walk of Dubai. You and your friend studied the existing market and done some research on the costs required to be incurred and operating the business. A unique feature that you will be offering to your client is a Smoothie served in an edible cup. Your research outcomes came as follow: To penetrate the market, you believe that a price of 25.00 AED per smoothy is appropriate. The cost o materials and ingredients to prepare the smoothies: . Ingredients Milk (20 AED for 1 gallon) Plain yogurt (12AED for 2kg) Sugar (30 AED for 10kg) Fruits assorted (100AED for Skg) . Edible cups (2AED per cup) Straws (20 AED for 500) Initial Costs: Equipment: Smoothie blender: 1080 AED per machine x 3 machines $3240 expected life is 2 years Equipment: Refrigerator/freezer: AED 2400. Expected life is 10 years. Tables for customers to sit outside: 540 per set x 5- 2700AED. Expected life is 3 years. Amount needed per cup 80 gm per smoothie 80 gm per smoothie 8 gm per smoothie 80 gm per smoothie 1 cup per smoothie 1 pcs per smoothie Countertops: 1200AED. Expected life is 10 years Booth rental: 2000AED a month Cleaning and other miscellaneous supplies: 200AED a month Sign for the booth 440 AED Total Initial Costs 12,180AED. Between you and your friend and a support from your parents you managed to have the required fixed cost covered for the first 3 months. Total investments by owners 60,000 AED. Employees: To run the business, you and your partner will take turns working with two other part-time employees, the monthly salary for each will be 1,200AED per month. Other costs: Direct materials costs will be covered by the owner's capital. Required: To answer the questions below, you will need to make assumptions, and add/change fixed and variable costs (please clearly indicate all assumptions made). 1) Using the information above you need to determine how many smoothies you will need to sell to break even. (For simplicity keep all costs on monthly basis throughout your analysis). 2) How much salary can you take for yourself and your partner friend and how many smoothies you need to sell to break even. 3) Should you leave your job to open the Smoothie shack? 3) Should you leave your job to open the Smoothie shack? ANSWERS TO THE CASE Fixed costs: those that stay the same when the volume of activity changes Monthly fixed costs Total monthly fixed cost Variable Costs per unit: Variable costs: those that vary in accordance with the volume of activity Ingredient Milk (20 AED for 1 gallon) Plain yogurt (12AED for 2kg) Sugar (30 AED for 10kg) Fruits assorted (100AED for 5kg) Edible cups (2AED per cup) Straws (20 AED for 500) Total Variable cost/smoothie 1 gal=3,785.41 g wt. Amount Amount needed/cup 100 ml per smoothie 80 gm per smoothie 8 gm per smoothie 80 gm per smoothie 1 cup per smoothie 1 pcs per smoothie Cost per cup Sales price per unit Variable cost per unit Contribution margin per unit Total Fixed costs Breakeven point-FC/CM 1) For your smoothie booth to break even you will need to sell. 2) If you decide to add a salary for you and your partner of . your fixed cost will increase by New fixed cost: New BE- Statement of income at breakeven: (no owners allowance) Total Sales @25 Total Variable cost@ Contribution margin Total Fixed costs Net income AED monthly smoothies per month Tital Sales @25 Total Variable cost @ Contribution margin Statement of income at new breakeven point: (with owners' salaries) Total Fixed costs (with salaries) Net income month. 3) Should you leave your job to open the Smoothie shack? smoothies a month. a month each, then

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Determing variable cost per unit Particulars Direct Material Cost Milk Plain Yogurt Sugar Fruits Ass... View the full answer