Math Problem Solver

Maria’s family gathered at her home after the funeral service. Her beloved husband Juan passed away unexpectedly. Now, her home was filled with family, friends, and neighbors, but she had never felt more alone.  

“What will you do now?” Maria’s sister Natalia asked, helping herself to another bowl of Maria’s rice and chicken soup from the large pot. The soup was nearly gone, having fed those who had come to express their condolences for the past few days. 

“I don’t know.” Maria had some savings, but she would need to get a job very soon. “Our brother Paco said I could run his fruit stand.” 

“But then you’ll have to move.” Natalia frowned and lifted a spoonful of the delicious soup to her lips. “This really is the best soup in the world, Maria. Too bad you couldn’t go into business selling it instead of Paco’s lemons and limes.” 

Maria observed the many now-empty bowls of her famous rice and chicken soup. It had been her grandmother’s recipe and Juan’s favorite. She knew she wasn’t expected to cook at her own husband’s funeral, but it seemed to make everyone happy. She could use some happiness today. 

Maria stirred what was left in the giant pot of soup, a perfect blend of broth, chicken, and rice. Making this soup was what she knew how to do best in the world. “Do you think I could?” she asked Natalia absent-mindedly, watching the colors in the beautiful soup swirl. “Start my own business? Making soup?”  

“Why not?” Natalia said, blowing on her soup before she took another big spoonful. “How hard could it be?” 

A business of her own would give her freedom to stay in her home and be near her friends. She wondered, how hard could it really be? 

When the guests finally left, Maria sat down to relax and ponder on this idea.  The more she thought about it, the more excited she became about the opportunity.  Fortunately, her husband had saved a fair amount of money for a rainy day.  Perhaps she should just go buy the ingredients and cooking equipment, rent a building, hire help and start selling.  Yes!  Tomorrow she was going to get up early and make it happen.  After all, it would keep her mind off of Juan.  Then she remembered his kind and supportive attitude.  She felt him telling her, “You can do anything you want - if you just put your heart into it.”  Exhausted from both grief and excitement, Maria decided to head to bed early.  She knew she was going to need extra rest if she was going to pull this off.

A woman doing computations

Source: Pexels

The next morning, she arose early, said her morning prayers, and began to make a list of all the things she would need.  But as she was writing the list, her father came by and was surprised to see her getting ready to head out.  “What are you doing?” he asked. 

“I’m going to start a business!” she replied.  “I’m making a list of everything I need to buy today.”

Her father wrinkled his brow. “What are you going to make?”

“Abuela’s chicken soup.  Everybody loves it.”

“Everybody?” he said.  It wasn’t one of his favorites.

“Oh. Don’t they?” she asked, feeling unsure for the first time.

“It’s honestly not for me to say,” he said.  “But before you waste time and money, go find out whether people really would be willing to pay for it. Once you’ve proven that there is enough demand for it - and for the right price - then you can go crazy buying all the stuff.  But I wouldn’t spend a dollar before I did that.”

Maria frowned. "I have no idea how to do that. ”

“I'll help you. I’ve learned a lot of hard lessons over the years.  Hopefully, I can help you avoid a few of those.”

He sat down, and they began to make a plan that would help her best research her target market.

The Soup Shack: The Profit Formula 

Maria spent weeks researching her market. Local restaurant menus focused more on salads not soup, likely due to the hot weather her town experienced during tourist season. However, they hadn’t tasted her grandmother’s recipe yet, which was tasty all year round.     

She invited her neighbor Gaston Petrenko who worked as a chef in a restaurant, several friends who worked as waitresses, the owner of the town’s largest local catering company, and a family of tourists staying nearby to her home for a free soup dinner. The feedback was overwhelmingly positive, confirming Maria's belief that she had something special to offer.   

She then decided to set up a booth at the local farmer’s market and see what kind of feedback she received there. Quite a few people tried it the first day, and from the looks on their faces, they seemed very pleased.  What was even better, she noticed that over 35% of them came back later in the week, about 22% of them bringing friends or family to try it too.  Her sales were increasing by 8-10% every day.  

“But what if these people only pay this much for soup at the market? Would they expect to pay less if I had it in a restaurant?” she wondered. She decided she had better do some surveys. 

When a customer purchased her soup, she would ask questions like, “How often do you eat out?  What times of the day do you usually eat out?  How much would you expect to pay for a bowl of soup like this in a restaurant?”  She learned that only about 40% of these individuals ate out regularly, but most would pay between $5-6 for a bowl of soup, with some being willing to pay more. Maria figured that even if only 20% came regularly, she should be okay, but she needed to figure out whether charging $5-6 would be enough to make a profit. 

She made a list of all the ingredients she needed and how much each would cost. The next day, she experimented with making large batches and found two local farmers who could supply meat and rice. 

Now, she needed to make sure it would work financially. She crafted her finance framework, mapping out the initial costs of ingredients and the staff she needs to hire.  

She felt like she had good idea of the costs, but was it low enough to leave her enough money to live if she were to charge less than $6?  Calculating Unit Economics When you know there is interest in your product, you should determine whether it will make money.  This is called calculating the “Unit Economics.”  Your goal is to determine if the costs to make the product are less than what your customers are willing to pay for it.   Let’s see how this works by looking at a breakdown of Maria’s costs. The Soup Shack Case: How much should Maria charge? Even though everyone seemed to like her grandmother’s soup, Maria knew she had to be able to sell it for more than it cost her to make it.  Fortunately, she had taken an online accounting class and remembered that the first step in proving it could make money was to calculate the costs, beginning with the Direct Materials and the Direct Labor.   Unit Costs First, she had to determine what the cost would be for all the ingredients for each bowl of soup, since she was going to sell it one bowl at a time. She wrote down her grandmother’s recipe and then estimated how much each ingredient would cost. The recipe would make one pot of soup and would be enough for about 10 bowls of soup. It's Your TurnYou will build out financial statements for Maria’s business over the next few weeks. You will be doing some what-if analysis as well as creating proformas and analyzing past performance. Please start filling out this template this week and add to it the assignments from future weeks. You will slowly complete the spreadsheet each week. This week, the information for Maria’s business would fit nicely into the COGS (cost of goods sold) tab. Keep track of everything related to COGS for Maria’s business. Based on the following information, calculate the material cost for each bowl of soup: Recipe: 1 chicken450 grams of rice2.5 liters of water18 grams of Grandma’s secret spice mix, her trade secret 20 grams of saltSince Maria can’t buy the all ingredients for one pot of soup at a time or one place and still get a good price, she does some research and estimates the cost of good quality ingredients per the following table: Ingredient Qty Unit Cost Chicken 1 each $ 5.00

Rice

20

kg

$ 19.50 Salt 1 kg $ 0.73

Water

100

Iiter

$ 2.50 Secret Spices 100 grams $ 12.45

After that, Maria estimated what the direct labor cost would.  Direct labor is the wages you must pay people who help produce the product or service. In this case, the cook produces the soup and a server serves it. She also included the costs for the person washing dishes since she reasoned that you need clean dishes to serve the food.  

Assumptions:

Maria’s cost for each direct labor person

Labor

$/HourCook$15.00

Server

$8.00Dishwasher$9.00

It takes the cook about 30 minutes to make a pot of soup.

The server serves about 20/bowls each hour (about three minutes per bowl).

The dishwasher washes, dries, and puts away bowls and utensils at about 1.5 minutes/bowl.

Calculate the direct labor costs for each bowl of soup.

With this information, Maria felt fairly comfortable with her total cost for one “unit” (bowl of soup), and she was ready to estimate how much to charge her customers. She needed a price for the soup that would leave her with at least a 60% gross margin because she knew she would have other expenses to operate that business that she would have to be accounted for later.Question 1

2 / 2 pts

Calculate the total material costs per pot of soup.

$6.78 $8.78

$7.76 $5.75

Question 2

2 / 2 pts

Calculate the material costs for Grandma’s secret spices per pot of soup.

$3.50 $1.80

$2.24 $2.75

Question 3

1 / 1 pts

Calculate the total cook labor costs per pot of soup.

$8.85 $5.85

$7.50 $6.50

Question 4

2 / 2 pts

Calculate the total server labor costs per bowl of soup.

$0.30 $0.40

$0.60 $0.55

Question 5

2 / 2 pts

Calculate the total dishwasher labor costs per bowl of soup.

$0.23 $0.25

$0.35 $0.18

Question 6

2 / 2 pts

Calculate the Costs of Goods Sold (COGS) Mat per bowl.

0.76

IncorrectQuestion 7

0 / 2 pts

Calculate the Cost of Goods Sold (COGS) Lab per bowl.

1.3

IncorrectQuestion 8

0 / 3 pts

Calculate the gross margin $ / bowl if the price was $5.00.

2.92

IncorrectQuestion 9

0 / 3 pts

Calculate the gross margin $ / bowl if the price was $6.00:

3.94

IncorrectQuestion 10

0 / 3 pts

Calculate the gross margin % / bowl if the price was $5.00 (round to the nearest 1/10). 59IncorrectQuestion 110 / 3 ptsCalculate the gross margin % / bowl if the price was $6.00 (round to the nearest 1/10).

66

IncorrectQuestion 12

0 / 3 pts

Calculate the price for a gross margin percent of 60.0% (round to the nearest penny).

5.15

IncorrectQuestion 13

0 / 3 pts

Calculate total daily gross margin if she could sell 30 bowls per day at $5.00 per bowl (round to the nearest penny).88.2Question 143 / 3 ptsCalculate total monthly revenue if she could sell 40 bowls per day for 21 days/month at $5.00 per bowl (round to the nearest dollar).

4,200

IncorrectQuestion 15

0 / 3 pts

Calculate total monthly gross margin $ if she could sell 40 bowls per day for 21 days/month at $6.00 per bowl (round to the nearest dollar).

3,321.6

IncorrectQuestion 16

0 / 3 pts

Calculate how many bowls a day would she have to sell to make $2,500 total gross margin each month at $5.00/bowl and 21 selling days (round to the nearest tenth bowl).

41

IncorrectQuestion 17

0 / 3 pts

Calculate how many bowls a day would she have to sell to make $2,500 total gross margin each month at $6.00/bowl and 21 selling days (round to the nearest tenth bowl).

30

Question 18

3 / 3 pts

Calculate how much total revenue would she need to make $2,500 total gross margin if gross margin % were 60.0% (round to the nearest dollar).4,167IncorrectQuestion 190 / 3 ptsCalculate how many bowls of soup per day would she need to sell at 60.0% gross margin % to make $2,500 total gross margin (21 selling days) (round to the nearest 1/10th bowl)

41

Question 20

1 / 1 pts

What are the other names gross margin? (Select all that apply)

Net income

Net margin

Contribution margin

Gross profit