chapter_3

Both segments are typically in the same building

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Unformatted text preview: to 12,000 per year, the number of fillings increased to 1,000 per year, while the number of 1 Making Yourself Successful in College cappings dropped to zero? With this change in product mix, the company would increase its fixed costs to $450,000 per year. What would be the effect of this change in product mix on the clinic’s earnings after taxes per year? If the clinic’s managers seek to maximize the clinic’s 2 Approaching College Reading and after-tax earnings, would this change be a good idea? E Developing a College-Level Vocabulary 3 Integrative Case Approaching College Assignments: Reading Textbooks and Following Directions (L.O. 1, 2, 3, 4, 5) 3-55. Financial Modeling Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customers—food from the restaurant segment and freshly brewed beer from the beer production segment. Both segments are typically in the same building, which allows customers to see the beer-brewing process. After months of research, the owners created a financial model that showed the following projections for the first year of operations: Sales Beer sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Food sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 781,200 1,074,150 97,650 Total sales . . . . . . . . . . . . . . . . . . . . . . . . . . . Less cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . $1,953,000 525,358 Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . Less marketing and administrative expenses . . . . $1,427,642 1,125,430 Operating profit . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 302,212 cor50782_ch01_001-072.indd 1 lan27114_ch03_080-109.indd 107 ✓ Related Resources See pages 000 to 000 of the Annotated Instructor’s Edition for general suggestions related to the chapters in Part One. 1 10/5/09 11:09:29 PM 10/22/09 10:34:04 PM REVISED PAGES Part II 108 Cost Analysis and Estimation 1 In the process of pursuing capital through private investors and financial institutions, RBC was PART approached with several questions. The following represents a sample of the more common questions asked: • • • • • • What is the break-even point? What sales dollars will be required to make $200,000? To make $500,000? Is the product mix reasonable? (Beer tends to have a higher contribution margin ratio than food, and therefore product mix assumptions are critical to profit projections.) What happens to operating profit if the product mix shifts? How will changes in price affect operating profit? How much does a pint of beer cost to produce? Orientation It became clear to the owners of RBC that the initial financial model was not adequate for answering these types of questions. After further research, RBC created another financial model that Preparing and p...
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This note was uploaded on 02/07/2014 for the course MIS 304 taught by Professor Mejias during the Spring '07 term at Arizona.

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