Question

1)You are now a grown-up and have 2 children: Nicole, aged 6, and Yuri, aged 8. They want to sell lemonade in the front yard for $.50 a glass. You agree that this would be a good experience in entrepreneurship, and tell them that you will loan them the money but they have to pay for their materials and equipment (the labor, however, is free.)

The lemonade mix costs $4.79 a package, and will make 100 glasses of lemonade. The sugar that you must add cost $2.21 for 5 pounds. You will need 2 ½ cups for every pitcher of lemonade, and you estimate that a pitcher will be about 10 glasses. You also calculate that it will take all 5 pounds to make 100 glasses.

The lemonade stand itself is made out of plywood, screws and paint that you paid about $25 for.

Question:

a) How many glasses will your children have to sell to pay you back for the plywood and cover their variable costs?

b) What if your kids wanted to make a profit of $50? How many glasses would they have to sell?

Answer 1

Sales units	100
Selling price per unit	$.50
Sales Amount	$ 50
- less Variable costs (4.79 +2.21)	-$7
Contribution margin	$43
Less : fixed costs	-$25
Net income	$18
Contribution margin per unit (43/100)	$.43

Break even sales = fixed costs/contribution per unit

= 25/.43 = 58 units

To cover fixed costs and variable costs the kids must sell 58 glasses of lemonade

b) if the kids want to make a profit of $50, they must sell:

= (25+50)/.43 = 75/.43 = 174.41

=In order to make a profit of $50 the kids must sell 175 glasses of lemonde