COST-VOLUME-PROFIT PROJECT Milk Shake Venture

You are considering opening a store selling milk shakes on the beach of a resort on the big island of Hawaii. You have gathered cost information and investigated funding this enterprise. But you don’t know whether this is likely to be a profitable project. And the venture will need to be profitable enough to allow you to leave your current job and devote full time to this new company.

Your great idea is the innovation of the flavoring straw that enhances the flavor of the milk shakes you make. You would encourage families to treat their whole family and offer small and large sizes for resort-level prices. Based on previous experience in this family-oriented business, you believe you can forecast the sales mix of small and large milk shake sales.

You have found a restaurant that has an opening for a concessionaire. The restaurant will provide the space for a fixed monthly rent plus a percentage of the sales. But you will have to purchase all of the equipment needed for the kitchen and the customers seating.

Hometown Bank will accept a loan application as soon as you can complete the business plan and demonstrate the profitability of your idea. You like the loan terms available for small businesses there and believe that you have enough collateral to get a reasonable interest rate.

You realize that if you had the following information, you could make a better decision:

  1. How many milkshakes will you need to sell to breakeven each month?
  2. How many milk shakes will you need to sell to realize a monthly profit enough to provide you with reasonable funds to support yourself?

In addition, you want to show your banker contribution margin income statements for the volume of business you have calculated in (1) and (2) above.

Should you leave your job to open the milk shake store?

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