Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing...
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Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company RBC Brewpubs provide two products to customersfood 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 beerbrewing 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 Total sales $ Less cost of sales Gross margin $ Less marketing and administrative expenses Operating profit $ In the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. The following represents a sample of the more common questions asked: What is the breakeven point? What sales dollars will be required to make $ To make $ 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? 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 provided the following information for the first year of operations. Sales Beer sales of total sales $ Food sales of total sales Other sales of total sales Total sales $ Variable Costs Beer of beer sales $ Food of food sales Other of other sales Wages of employees of sales Supplies of sales Utilities of sales Other: credit card, miscellaneous of sales Total variable costs Contribution margin $ Fixed Costs Salaries: manager, chef, brewer $ Maintenance Advertising Other: cleaning, menus, miscellaneous Insurance and accounting Property taxes Depreciation Debt service interest on debt Total fixed costs Operating profit $ Required: Perform a sensitivity analysis by answering the following questions: What is the breakeven point in sales dollars for RBC What is the margin of safety for RBC What sales dollars would be required to achieve an operating profit of $ $
Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company RBC Brewpubs provide two products to customersfood 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 beerbrewing 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
Total sales $
Less cost of sales
Gross margin $
Less marketing and administrative expenses
Operating profit $
In the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. The following represents a sample of the more common questions asked:
What is the breakeven point?
What sales dollars will be required to make $ To make $
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?
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 provided the following information for the first year of operations.
Sales
Beer sales of total sales $
Food sales of total sales
Other sales of total sales
Total sales $
Variable Costs
Beer of beer sales $
Food of food sales
Other of other sales
Wages of employees of sales
Supplies of sales
Utilities of sales
Other: credit card, miscellaneous of sales
Total variable costs
Contribution margin $
Fixed Costs
Salaries: manager, chef, brewer $
Maintenance
Advertising
Other: cleaning, menus, miscellaneous
Insurance and accounting
Property taxes
Depreciation
Debt service interest on debt
Total fixed costs
Operating profit $
Required:
Perform a sensitivity analysis by answering the following questions:
What is the breakeven point in sales dollars for RBC
What is the margin of safety for RBC
What sales dollars would be required to achieve an operating profit of $ $
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