Question

1. Assume you are going to start a business selling iced tea and that it takes 11 tea bags and one lemon for two quarts of the beverage. Assume whatever other costs you think will be incurred to get the beverage into the hands of a customer and that you will be selling this through a stand on your front lawn. How many quarts of iced-tea will you have to sell to earn your dream salary for the first year? (Pick your own salary and estimated costs). 2. Identify what costs are fixed and variable in your situation.

Answer 1

1)Dream Salary = $ 50000

Cost of 11 tea bag and one lemon =$ 2.5(two quarts)

Cost of one quart

Direct material cost = $1.25

Iced cubes = $.5

Labour cost =$1

Glass tumbler and other =$7500 per year

Maintenance expense= $800 year

Selling price = $3 for one quart

Contribution = $3- $2.75 =$.25

Quarts needed to sell for earning dream salary

= $ 7500 +$ 800 + $50000/.25= 233200 quarts

2)Identify variable cost and fixed cost

Variable cost = Direct material ( lemon and tea bag ),Ice cubes,Labour cost

Fixed cost = Maintenance expense, Glass tumbler