Transcript Anne`s Lemonade Stand - The Controllership Group

Anne’s Lemonade Stand
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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.
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Anne’s Lemonade Stand
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Let’s Start with calculating some basic information
What is Anne’s Standard cost?
5 lb of sugar yields
35
Material cost
Lemons per lb
$0.98
Sugar 5lb bag
$2.20
Total standard material cost
1
0.098
0.06286
0.16086 per cup
Bag of ice
$2.25 cost per day
Labor cost/hr
# hrs worked
Cost per day
$2.00
3
$6.00
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Anne’s Lemonade Stand
Next step let’s project revenue and expenses
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Anne's Lemonade Stand
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Total
5%
6%
8%
10%
8%
8%
10%
10%
15%
8%
8%
5%
100%
214
257
342
428
321
321
428
428
642
342
342
215
4280
107.00
128.50
171.00
214.00
160.50
160.50
214.00
214.00
321.00
171.00
171.00
107.50
2,140.00
34.42
41.34
55.01
68.85
51.64
51.64
68.85
68.85
103.27
55.01
55.01
34.58
688.47
72.58
87.16
115.99
145.15
108.86
108.86
145.15
145.15
217.73
115.99
115.99
72.92
1,451.53
5
5
5
5
5
5
5
5
5
5
5
5
60
$6.00 Salary & Wages
24.00
24.00
24.00
24.00
24.00
24.00
24.00
24.00
24.00
24.00
24.00
24.00
288.00
$2.25 Ice
11.25
11.25
11.25
11.25
11.25
11.25
11.25
11.25
11.25
11.25
11.25
11.25
135.00
$0.09 Cups
19.26
23.13
30.78
38.52
28.89
28.89
38.52
38.52
57.78
30.78
30.78
19.35
385.20
$1.00 Wagon rental
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
5.00
60.00
1.00% Interest
0.00
1.00
0.80
0.60
0.40
0.20
0.00
0.00
0.00
0.00
0.00
0.00
3.00
Total operating ex penses
59.51
64.38
71.83
79.37
69.54
69.34
78.77
78.77
98.03
71.03
71.03
59.60
871.20
Net Profit
13.07
22.78
44.16
65.78
39.32
39.52
66.38
66.38
119.70
44.96
44.96
13.32
580.33
Cups Sold
$0.50 Sales
$0.16086 Cost of sales
Gross Margin
Assumption # day s open
Operating Ex penses
Other
0.00
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Anne’s Lemonade Stand
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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.
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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?
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What other problems should she anticipate?
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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?
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Illness, vacations, no shows, unexpected sales volume
Pitchers, mixing containers, cash box, cost to construct the stand, delivery vehicle
Are there other cost overlooked by Anne?
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Anne’s Cash Flow Projection
Cash Flow
Cash from Operations
Net Income
(Increase) decrease in current assets
(Increase) decrease in inventory
Increase (decrease) in current liabilities
Net cash (used) provided from operations
Investing
Purchase assets
Otther investments
Net cash (used) provided from investing
Financing
Debt-borrow
Debt-payments
Cash from owner
Cash to owner
Total from financing
Net cash inflow (outflow)
Beginning Cash
Ending Cash
13.07
22.78
44.16
65.78
(44.74) (14.18) (13.33) 17.59
39.32
39.52
66.38
0.38 (16.70)
0.51
66.38 119.70
44.96
44.96
13.32
(33.67)
47.75
(0.51)
20.74
34.58
32.71 167.45
44.45
65.70
47.90
(31.67)
8.60
30.83
83.37
39.70
22.82
66.89
(75.00)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
(75.00)
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00 (20.00) (20.00) (20.00) (20.00) (20.00) 0.00
8.60 10.83 63.37 19.70
2.82 46.89 32.71
18.33 26.94 37.76 101.13 120.84 123.65 170.54
26.94 37.76 101.13 120.84 123.65 170.54 203.25
(50.00)
(50.00)
117.45
203.25
320.71
0.00
44.45
320.71
365.16
0.00
65.70
365.16
430.86
0.00
47.90
430.86
478.76
100.00
(20.00) (20.00) (20.00) (20.00) (20.00)
25.00
125.00
18.33
0.00
18.33
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Anne’s Inventory Assumptions
Production and inventory calculations Raw Materials Inventory units
Lemons-Beginning
Period 1
Period 2
Period 3
Period 4
Period 5
Period 6
Period 7
Period 8
Period 9
Period 10
Period 11
Period 12
Total
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
Purchase
47.10
34.20
42.80
32.10
32.10
42.80
42.80
64.20
34.20
34.20
21.50
419.44
847.44
Used in production
47.10
34.20
42.80
32.10
32.10
42.80
42.80
64.20
34.20
34.20
21.50
0.00
428.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
419.44
419.44
Lemons-Ending
Sugar-Beginning
0.00
1.54
1.77
1.54
1.37
1.20
0.97
0.74
0.40
0.63
0.86
0.71
0.00
Purchase
15.00
10.00
12.00
9.00
9.00
12.00
12.00
18.00
10.00
10.00
6.00
270.60
393.60
Used in production
13.46
9.77
12.23
9.17
9.17
12.23
12.23
18.34
9.77
9.77
6.14
0.00
122.29
1.54
1.77
1.54
1.37
1.20
0.97
0.74
0.40
0.63
0.86
0.71
271.31
271.31
0.00
471.00
813.00
1,241.00
1,562.00
1,883.00
2,311.00
2,739.00
3,381.00
3,723.00
4,065.00
4,280.00
0.00
471.00
342.00
428.00
321.00
321.00
428.00
428.00
642.00
342.00
342.00
215.00
0.00
4,280.00
Sugar-Ending
Finished Goods (Lemonade)
Beginning Inventory
Plus Production
Less Cost of sales
Ending Inventory
Inventory usage required for sales
Lemons-Lbs
Sugar - 5 lb bags
Sugar rounding
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
471.00
813.00
1,241.00
1,562.00
1,883.00
2,311.00
2,739.00
3,381.00
3,723.00
4,065.00
4,280.00
4,280.00
4,280.00
214
257
342
428
321
321
428
428
642
342
342
215
4,280.00
21.40
25.70
34.20
42.80
32.10
32.10
42.80
42.80
64.20
34.20
34.20
21.50
428.00
6.11
7.34
9.77
12.23
9.17
9.17
12.23
12.23
18.34
9.77
9.77
6.14
122.29
7
8
10
12
9
9
12
12
18
10
10
6
123.00
Purchase-lemons-lbs
46.16
33.52
41.94
31.46
31.46
41.94
41.94
62.92
33.52
33.52
21.07
419.44
838.88
Purchase Sugar-5 lb bags
33.00
22.00
26.40
19.80
19.80
26.40
26.40
39.60
22.00
22.00
13.20
270.60
541.20
Total purchases
79.16
55.52
68.34
51.26
51.26
68.34
68.34
102.52
55.52
55.52
34.27
690.04
1,380.08
Inventory cost of purchases
Production-cups
Lemons
47.10
34.20
42.80
32.10
32.10
42.80
42.80
64.20
34.20
34.20
21.50
Sugar
13.46
9.77
12.23
9.17
9.17
12.23
12.23
18.34
9.77
9.77
6.14
Cups of lemonade made
Beginning inventory $
471
342
428
321
321
428
428
642
342
342
215
428.00
122.29
0
36.15
4,280.00
0.00
44.74
58.91
72.25
54.66
54.27
70.98
70.47
104.14
56.38
56.89
0
Lemons
46.16
33.52
41.94
31.46
31.46
41.94
41.94
62.92
33.52
33.52
21.07
Sugar
33.00
22.00
26.40
19.80
19.80
26.40
26.40
39.60
22.00
22.00
13.20
Inventory purchased
79.16
55.52
68.34
51.26
51.26
68.34
68.34
102.52
55.52
55.52
34.27
0.00
690.04
Inventory sold
34.42
41.34
55.01
68.85
51.64
51.64
68.85
68.85
103.27
55.01
55.01
34.58
688.47
Ending inventory $
44.74
58.91
72.25
54.66
54.27
70.98
70.47
104.14
56.38
56.89
36.15
1.57
1.57
44.74
14.18
13.33
(17.59)
(0.38)
16.70
(0.51)
33.67
(47.75)
0.51
(20.74)
(34.58)
1.57
Purchases
419.44
270.60
6