Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Rosevill Brewing Company (RBC) 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 productionsegment. 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.SalesBeer salesFood sales$ 910,800Other salesTotal sales952, 200207,000$2,070,000Less cost of salesGross marginLess marketing and administrative expenses515,430$1,554,5701,097,300$ 457,270Operating profitIn the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. Thefollowing represents a sample of the more common questions asked:What is the break-even point?What sales dollars will be required to make $110,000? To make $490,000?• Is the product mix reasonable? (Beer tends to have a higher contribution margin ratio than food, and therefore product mixassumptions 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. Afterfurther research, RBC created another financial model that provided the following information for the first year of operations.SalesBeer sales (44% of total sales)Food sales (46% of total sales)Other sales (10% of total sales)$910,800952, 200207,000Total sales$2,070,000Variable CostsBeer (14% of beer sales)$127,512Food (34% of food sales)Other (31% of other sales)Wages of employees (20% of sales)Supplies (2% of sales)Utilities (4% of sales)323,74864,170414, 00041,40082,800Other: credit card, misc. (3% of sales)Total variable costsContribution marginFixed CostsSalaries: manager, chef, brewer62,100$1,115,730$ 954,270$137,000Maintenance29,000AdvertisingOther: cleaning, menus, miscInsurance and accounting19,00033,00036,00023,00091,000129,000Property taxesDepreciationDebt service (interest on debt)Total fixed costs$ 497,000$ 457,270Operating profitRequired:Perform a sensitivity analysis by answering the following questions:a. What is the break-even point in sales dollars for RBC?b. What is the margin of safety for RBC?c. What sales dollars would be required to achieve an operating profit of $110,000? $490,000?Complete this question by entering your answers in the tabs below.Required ARequired BRequired CWhat is the break-even point in sales dollars for RBC? (Round intermediate calculations to 3 decimal places and your final...hale dallar'

Break Even Point is a point or a level pf production in an entity at which the cost of production…

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 (44% of total sales) Food sales (46% of total sales) Other sales (10% of total sales) Total sales Variable Costs $910,800 952, 200 207,000 $2,070,000 Beer (14% of beer sales) Food (34% of food sales) Other (31% of other sales) Wages of employees (20% of sales) Supplies (2% of sales) Utilities (4% of sales) Other: credit card, misc. (3% of sales) Total variable costs Contribution margin Fixed Costs $127,512 323,748 64,170 414,000 41,400 82,800 62,100 $1,115,730 $ 954, 270 Salaries: manager, chef, brewer Maintenance Advertising Other: cleaning, menus, misc Insurance and accounting Property taxes Depreciation Debt service (interest on debt) Total fixed costs $137,000 29,000 19,000 33,000 36,000 23,000 91,000 129,000 $ 497,000 $ 457,270 Operating profit Required: Perform a sensitivity analysis by answering the following questions: a. What is the break-even point in sales dollars for RBC? b. What is the margin of safety for RBC? c. What sales dollars would be required to achieve an operating profit of $110,000? $490,000?

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q