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Anne’s Lemonade Stand. 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.

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anne s lemonade stand
Anne’s Lemonade Stand
  • 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.
anne s lemonade stand1
Anne’s Lemonade Stand
  • Let’s Start with calculating some basic information
  • What is Anne’s Standard cost?
anne s lemonade stand2
Anne’s Lemonade Stand
  • Next step let’s project revenue and expenses
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Anne’s Lemonade Stand
  • 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.
    • 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?
      • Illness, vacations, no shows, unexpected sales volume
    • What other problems should she anticipate?
      • 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?
      • Pitchers, mixing containers, cash box, cost to construct the stand, delivery vehicle
    • Are there other cost overlooked by Anne?