Question

on 1 30 points Save Answer Little Mikey wants to run a lemonade stand, but he needs your help to figure out if it is worthwhile lemonade for $0.15 per glass (variable costs), and he plans on charging $0.50 her folding table, chair, pitcher and glasses (i.e. fixed costs). Mikey will have to pay $10 to his friends to man the table (i.e. more fixed costs). Mikey thinks he can sell 40 glasses of lemonade and he wants to know if he will break even. Will Mikey hit his cash break-even unit sales goal? By how many glasses will he exceed or miss his break-even production point? or not. He tells you he can make per glass. His mom insists on charging $s for wear-and-tear on O Mikey will miss break-even by 13 glassest Mikey will exceed break-even by 10 glasses O Mikey will exceed break-even by 3 glasses O Mikey will break-even exactly Mikey will miss break-even by 3 glasses

Answer 1

Answer part 1:

Contribution per glass = Sales price per glass - variable cost per glass = $0.50 - $0.15 = $0.35

Cash Fixed costs = Wages = $10

Depreciation is a non-cash expense.

Cash break-even in units = $10 / $0.35 = 28.57 = 29 glasses

Number of glasses he can sell = 40 glasses

As such:

Yes, he will hit cash break-even unit sales goal.

Answer part 2:

Correct answer is:

Mikey will miss break-even by 3 glasses

Explanation:

Contribution per glass = Sales price per glass - variable cost per glass = $0.50 - $0.15 = $0.35

Fixed costs = Wear and Tear (depreciation) charges + Wages = $5 + $10 = $15

Break-even in units = Fixed cost /Contribution per glass = $15 / $0.35 = 42.86 = 43 glasses

Number of glasses he can sell = 40 glasses

As such:

MIkey will miss break-even by (43 - 40 =) 3 glasses.

As such option E is correct and other options A, B, C, and D are incorrect.