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Please help me answer the 3 questions, asked below.
SYNTHESIS
Refreshing beverages such as fruit shake and smoothies have become the quickest way to beat the heat, especially during dry season. Over the last two years, Pearly Shake has become known as a quench thirst for people living near Galas Market. With its affordable beverages ranging from ₱25.00 for the regular size shake and ₱30.00 pesos for large size shake with a topping of your choice. According to Ms. Analyn Lim, owner of Pearly Shake, her business makes ₱ 15,000 to ₱17,000 average sales per day. Pearly Shake offers variety of flavors (in powdered form) such as bubblegum,double-dutch, strawberry, vanilla, chocolate and ube.
As what the owner have said “a micro-scale business do not require much investment, an entrepreneur can start his own business with a small capital. Nowadays, customers have high tend to consumption product of milk and sugar but they have few choices to choose from so I set-up Pearly Shake try to create the demand for my customers”.
In addition, Analyn Cheng employs three personnel for her business. She pays them ₱ 250.00 per day inclusive of free breakfast, lunch, and dinner. Ms. Cheng usually travels from Galas Quezon City to Divisoria, once a month to buy powdered shake flavors, straws, plastic cups, sugar, cream, whole milk.
POINT OF VIEW
This final paper will take the point of view of Pearly Shake’s owner, Analyn Cheng.
STATEMENT OF THE PROBLEM
This paper’s approach emphasizes the importance of CVP analysis and how it ties directly into planning and control processes management must take in order to manage a successful business.
Question 1: In order to manage Pearly Shake successfully: How can Ms. Cheng fully improve the its pricing system?
QUESTION 2: Using the below information, determine the number of shakes you will need to sell to break even.
| DIRECT MATERIAL INGREDIENTS | Small (8 oz. size) | Large (12.oz size) |
| Condensed Milk (₱ 41. 50 for 300 mL) | 20mL or 0.676 fluid ounce | 30 mL or 1.017 fluid oz |
| Sugar (₱500.00 for 15 lb bag = 30 cups) | 1/2 cup of sugar | 3/4 cup of sugar |
| Flavorings | .25 per shake | .40 per shake |
| Specialty Straws | .75 straw | .75 straw |
| Cups (100 8 oz. cups at a cost of ₱150.00) | ||
| Cups (100 12oz. cups at a cost of ₱185.00) | ||
| Fixed cost: | ||
| Rental Fee: ₱5,000 a month | ||
| Cleaning and other miscellaneous supplies | ₱2,000 a month | |
| Equipment: Industrial Milk Shake Maker: | ₱2,500 per machine X 3 machine = ₱ 7,500 | |
| Equipment: Refrigerator : ₱4,500 | ||
| Licenses and permits: ₱1,050 a year | ||
| Owner’s salary: ₱180,000 a year | ||
| Employees | ||
| Three full-time employees: each receiving a daily salary of ₱250.00 | ||
Question 3: Should Ana fully focused her time on this business?
OBJECTIVES
• To create a strong product awareness.
• To achieve an increasing number of loyal consumers.
• To maintain a positive, strong growth of the micro-enterprise each year.
Expert Answer
ANS 2. BREAK-EVEN POINT IN UNITS = FIXED COSTS/ (SALES PRICE PER UNIT – VARIABLE COST PER UNIT)
BREAK EVEN POINT IN DOLLARS= SALES PRICE PER UNIT * BREAK EVEN POINT IN UNITS
FIXED COST= 60000+ 24000+ 7500+ 4500+ 1050+ 180000+ 250*365= 368300
TOTAL BEP= BEP1 + BEP 2
TOTAL BEP= BEP FOR 8OZ UNITS + BEP FOR 12OZ UNITS
VARIABLE COSTS(VC) FOR 8OZ= 20/300*41.5 + 1/60*500 + 0.25+ 0.75 + 150/100 = 13.6
VC FOR 12Z= 30/300*41.5 + 3/4/30*500 + .4 +.75+ 185/100= 19.65
assuming sales of 50% for both variants:
weighted avg sales price per unit= 25*.5+30*.5= 27.5
weighted avg variable cost per unit= 13.6*.5+19.65*.5= 16.625
BEP= 368300/ (27.5-16.625)= 33866.67 units
so the number of 8oz shakes= 16933.33 units and 12oz= 16933.33 units to break even
BEP in monetary terms= 16933.33* 25+ 16933.33*30= 931333.233
Ans 1: She can fully improve the pricing system by introducing Cost-based pricing where the price includes the cost of ingredients and cost of operating the business.
- include a profit percentage with product cost
- add a percentage to an unknown product cost
- blend of total profit and product cost
