THE SCENARIO: 31 Scoops Ice Cream a new concept in gourmet icecream is finishing up its business plan for upcoming VentureCapital rounds and just needs to complete its break-even analysisto be done. In order to get started with its ice cream business, itwill need to purchase some state-of-the-art ice-cream manufacturingequipment valued at $50,000, which they will be able to purchase ata 30% discount. In addition, they will need to rent several storelocations for a total of $15,000 per month. Other fixed costsinclude monthly salaries of $6,000 for 3 scoopers and othermiscellaneous expenses of $2,000 per month. For you accounting“experts” out there, for the purposes of these exercises, you mayignore the impact/effect of depreciation.31 Scoops estimateVariable Unit Costs to be about $1. They would also like to remainprice competitive and charge $3.50 per serving of ice cream.

Part I. What is the break-even point if the time horizon ischanged to two years?

Part II. 31 Scoops has now found a special type of cream thatthey want to use in their product, which will change their cost perserving of ice cream by 10 cents. They wish to offset this byincreasing the price by 10 cents as well. Now, what is thebreak-even point if the time horizon is two years?

Part III. Now assume that you have to take into account thescooping ability of your employees. Let’s assume that one scoopercan scoop up 35,000 servings of ice cream per year (that’s a LOT ofscooping). Look at your Break-Even Point in Question 1, do you haveenough people to scoop up this many servings? You only want to payfor just enough scoopers that you will need. If you don’t have theright amount of servers (too few or too many) adjust your fixedcosts to account for the new number of scoopers (one scooper costs$2,000 in monthly salaries) and tell me what is your new Break-EvenPoint. Is this new BEP supported by the number of scoopers youselected?