SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE A CAN OF SODA

1
SIMPLE CONTRIBUTION MARGIN ON ONE UNIT SALE A
CAN OF SODA

• Selling price for one can of soda 1.00
• Cost of Goods Sold (direct cost of the
  product/service)
• Average cost of a can of soda .50
• Average shipping/distribution cost per unit
  .06
• TOTAL COGS .56
• GROSS PROFIT PER CAN .44
• Less Other variable costs .00
• NET CONTRIBUTION MARGIN (AFTER ALL DIRECT
  COSTS) .44

2
BREAK-EVEN POINT FOR SODA VENDING BUSINESSSCHOOL
OF BUSINESS AGREEMENT

• Agreement with School of Business to locate a
  soda vending machine in Chan Shun Hall. School
  of Business wants 25 of the gross profit per can
  in exchange for giving you the exclusive vending
  rights to their building.
• QUESTION What is your break-even point if the
  initial contribution margin is .44/can?
• YOUR FIXED COSTS
• Rent on Vending Machine 50/mo
• TOTAL MONTHLY FIXED COSTS 50/mo
• GROSS PROFIT PER SODA .44
• LESS OTHER VARIABLE COSTS
• (25 of gross profit per can paid to School of
  Business) - .11
• NET CONTRIBUTION MARGIN .33
• BREAK-EVEN POINT Fixed Costs/Net Contribution
  Margin
• 50/.33 151.5 cans of soda per
  month

3
SODA VENDING BUSINESS 200 cans/moSCHOOL OF
BUSINESS AGREEMENT

• If you expect to sell about 200 cans of soda per
  month, what profits do you expect?
• Cost of Goods Sold (direct cost of the
  product/service)
• Average cost of a can of soda .50
• Average shipping/distribution cost per unit
  .06
• Royalty paid to School of Business per can .11
• TOTAL COGS .67
• GROSS PROFIT/CONTRIBUTION MARGIN per soda
  .33
• BREAK-EVEN POINT 50/.33 151.5 cans of soda
  per month
• If 200 sodas sold per month
• REVENUES (200 x 1) 200
• Less COGS (200 x .67) - 134
• Gross Profits 66
• Less Fixed Costs - 50
• NET PROFITS 16/mo (192/yr)

4
PROFITS FOR SODA VENDING BUSINESS Assumes sales
of 300 and 400 cans/mo

• If 300 sodas sold per month
• REVENUES (300 x 1) 300
• Less COGS (300 x .67) - 201
• Gross Profits 99
• Less Fixed Costs - 50
• NET PROFITS 49/mo (588/yr)
• If 400 sodas sold per month
• REVENUES (400 x 1) 400
• Less COGS (400 x .67) - 268
• Gross Profits 132
• Less Fixed Costs - 50
• NET PROFITS 82/mo (984/yr)

5
THE ECONOMICS OF ONE UNIT SALE

• Selling price for one foot-long veggie-turkey
  sandwich 5.00
• Cost of Goods Sold Price Unit Used Cost
• VeggieTurkey (1/4 lb) 3.20 per lb ¼ lb .80
• Cheese (5 slices) 2.88 24 pack 5 slices .60
• Tomato (1/4 lb) 1.60 per lb ¼ lb .40
• Pickles (2) .12 each 2 each .24
• Lettuce (2 oz) 1.28 per lb 2 oz .16
• Bread (1 long roll) 3.96 dozen 1 roll .33
• Miracle Whip (1 oz) 3.84 32oz jar 1 oz .12
• Mustard (1/2 oz) 2.40 20oz jar ½ oz .06
• Salt (2 shakes) 1.00 per lb 1/100 lb .01
• Napkins (2) 3.00 100 pack 2 each .06
• Paper wrapping (2 foot) .10 per foot 2 feet
  .20
• Plastic bag (1) 7.00 100 roll 1 bag .07
  3.05
• CONTRIBUTION MARGIN 1.95
• Direct Labor (3 min) 8.00 per hr 1/20 hr
  .40

6
BREAK-EVEN FOR YOUR SANDWICH SHOP

• OVERHEAD EXPENSES
• Rent 1,000/ mo
• Electricity 100/ mo
• Phone 30/ mo
• Advertising 50/ mo
• Misc Supplies 50/ mo
• Monthly Labor 312 hrs/mo x (8.00/hr 25
  benefits) 3120/ mo
• (Open 26 days a month, 12 hours per day)
• TOTAL MONTHLY FIXED COSTS 4,350/ mo
• CONTIBUTION MARGIN PER SANDWICH 1.95
• BREAK-EVEN POINT 4,350/1.95 2,230.77
  sandwiches a month, or about 85.8 sandwiches per
  day! (Thats about 7.15 sandwiches per hour of
  operation!)

7
REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP a)
if turkey price is 4/lb and tomatoes 2/lb

• OVERHEAD EXPENSES
• Rent 1,000/ mo
• Electricity 100/ mo
• Phone 30/ mo
• Advertising 50/ mo
• Misc Supplies 50/ mo
• Monthly Labor 312 hrs/mo x (8.00/hr 25
  benefits) 3120/ mo
• (Open 26 days a month, 12 hours per day)
• TOTAL MONTHLY FIXED COSTS 4,350/ mo
• Price increases add .30 cost per sandwich thus
• CONTIBUTION MARGIN PER SANDWICH 1.65
• BREAK-EVEN POINT 4,350/1.65 2,636.36
  sandwiches a month, or about 101.4 sandwiches per
  day! (Thats about 8.45 sandwiches per hour of
  operation!)

8
REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP b)
if worker is paid 9.00/hr instead of 8.00/hr

• OVERHEAD EXPENSES
• Rent 1,000/ mo
• Electricity 100/ mo
• Phone 30/ mo
• Advertising 50/ mo
• Misc Supplies 50/ mo
• Monthly Labor 312 hrs/mo x (9.00/hr 25
  benefits) 3510/ mo
• (Open 26 days a month, 12 hours per day)
• TOTAL MONTHLY FIXED COSTS 4,740/ mo
• CONTIBUTION MARGIN PER SANDWICH 1.95
• BREAK-EVEN POINT 4,740/1.95 2,430.76
  sandwiches a month, or about 93.49 sandwiches per
  day! (Thats about 7.79 sandwiches per hour of
  operation!)

9
REVISED BREAK-EVEN FOR YOUR SANDWICH SHOP c)
if worker is paid 9.00/hr and turkey/tomato
prices rise

• OVERHEAD EXPENSES
• Rent 1,000/ mo
• Electricity 100/ mo
• Phone 30/ mo
• Advertising 50/ mo
• Misc Supplies 50/ mo
• Monthly Labor 312 hrs/mo x (9.00/hr 25
  benefits) 3510/ mo
• (Open 26 days a month, 12 hours per day)
• TOTAL MONTHLY FIXED COSTS 4,740/ mo
• Price increases add .30 cost per sandwich thus
• CONTIBUTION MARGIN PER SANDWICH 1.65
• BREAK-EVEN POINT 4,740/1.65 2,872.73
  sandwiches a month, or about 110.49 sandwiches
  per day! (Thats about 9.21 sandwiches per hour
  of operation!)

10
PROFIT EXPECTATIONS FOR YOUR SANDWICH SHOP d)
Cheap turkey/tomatoes and 8/hr wages

• OVERHEAD EXPENSES
• Rent 1,000/ mo
• Electricity 100/ mo
• Phone 30/ mo
• Advertising 50/ mo
• Misc Supplies 50/ mo
• Monthly Labor 312 hrs/mo x (8.00/hr 25
  benefits) 3120/ mo
• (Open 26 days a month, 12 hours per day)
• TOTAL MONTHLY FIXED COSTS 4,350/mo
• ADD IN EXPECTED PROFITS OF 2,000/mo
• CONTIBUTION MARGIN PER SANDWICH 1.95
• To achieve your profit objective, you must sell
  about 3,256.41 sandwiches a month (6,350/1.95),
  or about 125.25 sandwiches per day! (Thats
  about 10.5 sandwiches per hour of operation!)

11
PROFIT EXPECTATIONS FOR YOUR SANDWICH SHOP e)
Expensive turkey/tomatoes and 9/hr wages

• OVERHEAD EXPENSES
• Rent 1,000/ mo
• Electricity 100/ mo
• Phone 30/ mo
• Advertising 50/ mo
• Misc Supplies 50/ mo
• Monthly Labor 312 hrs/mo x (9.00/hr 25
  benefits) 3510/ mo
• (Open 26 days a month, 12 hours per day)
• TOTAL MONTHLY FIXED COSTS 4,740/mo
• ADD IN EXPECTED PROFITS OF 2,000/mo
• Price increases add .30 cost per sandwich thus
• CONTIBUTION MARGIN PER SANDWICH 1.65
• To achieve your profit objective, you must sell
  about 4,084.85 sandwiches a month (6,740/1.65),
  or about 157.11 sandwiches per day! (Thats
  about 13.1 sandwiches per hour of operation!)