The Lemonade Stand

1
The Lemonade Stand

• Creating a Business

2
Step 2 Lemonade Stand Expenses

• Start-up Costs
• Variable Costs
• Fixed Costs

3
Start-Up Costs

• Start-Up Costs the amount of money required to
  start your business.
• Brainstorm
• What items will you need to start your business?
• Estimate how much each item will cost.

4
Variable Costs

• Variable Costs how much it costs to make or buy
  each product you plan to sell.
• Ex Retailer of neckties buys each tie at
  wholesale for 5.00.
• Variable Cost per unit (per tie) 5.00
• Ex Retailer of neckties buys 10 ties at
  wholesale for 5.00
• Total Variable Cost (10 / 5.00) 50.00

5
Variable Costs

• Most businesses keep track of their variable
  costs as they sell their products.
• Ex If you sold 20 ties, you would say you have a
  variable cost of 100.00
• Its called variable cost because the total cost
  varies depending on how many products you sell.
• Ex Buy 20 _at_ 5.00 only sell 15 VCP 75.00
• Lemonade Stand
• Variable cost per unit 1 cup of lemonade

6
Variable Costs

• Activity
• Make a list of all ingredients that make up one
  cup of lemonade.
• Next to each item, write down how much you will
  need to make each cup.
• Calculate how much each cup of lemonade will cost
  you to make.

7
Fixed Costs

• Fixed Costs the costs a business has to pay on
  a regular basis. Fixed costs are not directly
  related to how many products you sell.
• Ex Telephone bill, rent payment
• Keep fixed costs low the higher the fixed costs,
  the more you have to sell in order to make enough
  money just to pay your bills!
• Overhead the total of your fixed costs

8
Fixed Costs

• U Utilities (telephone, electricity)
• S Salaries
• A Advertising (flyers posters each month)
• I Insurance
• I Interest (only if you borrowed money for
  start-up
• R Rent (free business is at home)
• Lemonade Stand Fixed Expenses 20 adv.

9
Tips to Remember

• Do what it takes to set yourself apart from
  others
• Final Project When you make your lemonade stand,
  you will have to differentiate yourself from your
  competition to make the most profit by the end of
  the class.

10
Step 3 Dont Let Your Business Go Sour!

• REVENUE the money brought into a business.
• Ex A pizzeria owner sells pizza for 1.00 per
  slice.
• Revenue per unit is 1.00
• Ex If he sells 22 slices in one day, his revenue
  for the day is 22.00

11
Pricing

• In order to calculate revenue, you must first set
  the selling price.
• 1 Consider your variable cost per unit. Selling
  price must be higher to make a profit.
• Keystoning selling the product for double the
  cost
• Ex Lemonade costs .10 per unit sell at .20

12
Procedure for Setting Prices

• A. Begin with a list of suggested prices for
  selling lemonade
• B. Estimate the total number of cups of lemonade
  you might sell at each price
• C. Calculate potential profit for each price
• See graph on board for example

13
Gross Profit

• Gross Profit revenue minus variable costs
• Ex Revenue per unit (.60) Variable cost per
  unit (.20) Gross profit per unit (.40)
• (24 / 40 .60)
  (given) (.60 - .20
  .40)
• Each cup of lemonade gives you a profit of .40

14
Tip of the Day

• Every business person should know how many
  products the business must sell each month in
  order to stay in business.

15
Break-Even Formula

• Break-Even Point in Units
• Total Monthly Fixed Costs/Gross Profit per unit
• (Sales
  Price per unit-Variable cost per unit)
• Lemonade Stand 20/.40 50
• In other words You must sell 50 cups of lemonade
  each month to break-even
• Break-Even Point in Dollars
• Break-Even Point in Units x Sales Price per Unit
• Lemonade Stand 50 x .60 30.00

16
Break-even Example

• Your company sells socks.
• The revenue per unit 1.50.
• Variable cost per unit .75
• Monthly fixed expenses
• Advertising 15
• Utilities 25
• Interest 10
• Calculate break-even point in units

17
Answer

• 1.50 - .75 .75
• 15 25 10 50
• 50 / .75 66.7
• You must sell 66.7 (or) 67 socks each month to
  break-even.

18
Step 4 The Bottom Line

• Sales Forecast - how many products you can sale
  in a given time period
• Sales Forecast Example
• See overhead

19
5 The Income Statement

• Income Statement a financial statement that
  indicates how much money a business earns or
  loses during a particular period.
• Also know as profit and loss statement

20
(No Transcript)