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Anne’s Lemonade Stand. Anne sells lemonade for 50 cents a cup. This season she expects to sell 4,280 cups in the 12 weeks she will be open.
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Anne’s Lemonade Stand • Anne sells lemonade for 50 cents a cup. This season she expects to sell 4,280 cups in the 12 weeks she will be open. • Lemons cost 98 cents per pound and one pound of lemons yields 10 cups of lemonade. Sugar cost $2.20 for a 5 pound bag and each 5 pound bag yields 35 cups. She uses a 22lb bag of ice per day at a cost of $2.25 per bag. Cups cost 9 cents each. • Start up cost are $75 for pitchers, table, chairs, lemon squeezer, utensils and ice chest. • Labor cost are for her neighbor Joe who works 3 hours each day for $2 an hour except for Thursday. • How much profit will Anne make and where’s the cash? Remember profitability does not equal the cash flow. • Seems simple but where do you start and where does Anne get her start up cash? She has $25 from savings to invest where does the rest come from? Is it from Mom (investor or family member loan), or other credit sources (usually credit cards)? • What about inventory? How much should I have on hand, how long is the lead time to get the raw materials, how long does the lemonade take to make, quality control (should I start with fresh lemonade each day), etc.? • Then there is the question about location.
Anne’s Lemonade Stand • Let’s Start with calculating some basic information • What is Anne’s Standard cost?
Anne’s Lemonade Stand • Next step let’s project revenue and expenses
Anne’s Lemonade Stand • Clearly Anne made a profits with a 67.83% gross margin and low overhead but how does the cash flow look over this same time period? • Many question need to be asked to project her cash flow. • What inventory levels should she maintain – minimum and maximum? • How much lemonade should be made each day (production)? • Could profitability be enhanced by ordering bulk quantities of raw material and how would this impact liquidity? • Will she have enough staff to cover peak sales periods? • Illness, vacations, no shows, unexpected sales volume • What other problems should she anticipate? • Bad weather, bad lemons, have secondary suppliers, transportation, bad location • What assets will need to be bought that effect the balance sheet and cash but not revenue and expense? • Pitchers, mixing containers, cash box, cost to construct the stand, delivery vehicle • Are there other cost overlooked by Anne?
