Question - CVP, alternative cost structures. Kids Lemonade Stand (KLS) is run by Sarah, who sells lemonade for $0.50 per glass. Lemons, sugar and water cost $0.15 per glass. Sarah's friend, Jessica, helps out by squeezing the lemons for $0.10 each. (Each lemon will provide enough juice for 2 glasses of lemonade.) Sarah uses tables, chairs and pitchers that belong to David who gathered the furniture when he had the stand last summer. David charges $6 per day for use of the furniture.
1. How many glasses of lemonade does Sarah have to sell each day to breakeven?
2. Sarah wants to earn $3 per day after expenses. How many glasses does she have to sell to earn $3.
3. David wants more money, so he has offered to squeeze all the lemons Sarah needs for $1.70 per day. If Sarah hires David instead of Jessica, how many glasses will Sarah have to sell each day to breakeven?
4. At what sales level will Sarah be indifferent between hiring Jessica or David to squeeze the lemons? At what sales levels would she prefer to (a) hire Jessica (b) hire David?