Posted by Jojo on Wednesday, February 21, 2007 at 6:55pm.
3. Dr. Colin Modella, an music history professor at the University of Arizona, supplements her income by selling cappuccino on campus to students and other faculty members when she is not teaching, doing research, creating curriculum, or attending committee meetings. She sells iced cappuccino in hot weather. Michaella has $550 invested in her cappuccino business, which consists of $100 of miscellaneous cash that she keeps in her cash drawer, plus the cappuccino machine (which originally cost $350,) and the ice shaver.
Since there is a popular football game on the Friday of the last week of August, Michaella anticipates that Friday will be a busy day. She buys an unusually large amount of materials that goes into making and selling the cappuccino for $150 and increases the cash in her cash drawer to $200 to make change. Her supplier, Mallory’s Specialty Foods, allows her to charge $100 of her total purchases, and she pays cash for the rest. Friday morning, she buys $30 for several bags of ice, and $45 for cups.
With temperatures in the 90s, Michaella sells three-quarters of her stock for $1,035 in cash. At the end of the day, she returns home with her unsold cappuccino materials (except for the unsold ice which melted) with plans to replenish her inventory, pay her supplier bill, and obtain more ice and cups for finals week.
Required
a. Prepare an income statement to reflect the results of operations for Michaella's Friday business. List any items that you found difficult to measure.
b. Evaluate Michaella's relative success in selling cappuccino.
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