Scenario: For this year’s Fourth of July holiday weekend (two-day event), you are directing fundraising efforts in the name of your place of employment to raise money for a community charity.
Your employer will match every $100.00 you earn. Your plan is to sell your favorite family-recipe cookies and earn at least $500.00 in profit to receive the matching contributions totaling $500.00.
Your variable costs will be cookie-making and packaging supplies. Your only fixed cost will be the standard entrance fee of $100.00 since your place of business is sponsoring all other costs associated with the booth.
Your manager says she will advance money from the department’s event fund for your entrance fee, ingredients, and packaging costs; however, she wants a detailed plan from you first.
Using the data gathered, write up a 250-word proposal for your manager in which you indicate your estimate of how much each cookie will cost (ingredients and packaging), what you plan to charge per cookie, and how many cookies you will need to sell to break-even (the point at which you will have earned enough to replace the department’s advance funding).
You will then estimate how many cookies you will need to sell to meet your target sales goal of $500.00 in profit. Finally, you will describe your contingency plan in case sales go much slower than you expect.
Tip: If sales on day one fall below the estimated 100 cookies, you may want to consider adjusting your sale price or your sales tactics.
Data Gathered: Your plan is to sell at least 100 cookies each day during the two-day event. You estimate that ingredients and packaging will total $0.50 per cookie (variable costs).
The entry fee of $100.00 is your only fixed cost. Your goal is to earn $500.00 over and above any fixed or variable costs in order to qualify for the matching $500.00 from your company. Calculate your break-even point using the following formula:
Break-even point = Fixed costs/Unit selling price – Variable costs
Checklist:
Explain how much you plan to charge per cookie, how much it will cost you to make and package each cookie, and how many cookies you will need to sell in order to break-even. Show your calculation: (Fixed costs/(Unit selling price – Variable costs).
Estimate how many cookies you will need to sell in order to meet your sales goal of earning at least $500.00.
Note your contingency plan if sales on day one fall below 100 cookies.