Peform 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 $170,000? $440,000? **Income Statement Analysis for RBC****Sales**- **Beer sales (40% of total sales):** $784,000- **Food sales (48% of total sales):** $940,800- **Other sales (12% of total sales):** $235,200**Total sales:** $1,960,000**Variable Costs**- **Beer (13% of beer sales):** $101,920- **Food (34% of food sales):** $319,872- **Other (30% of other sales):** $70,560- **Wages of employees (20% of sales):** $392,000- **Supplies (1% of sales):** $19,600- **Licenses:** $9,000- **Other, credit card, misc. (3% of sales):** $58,800**Total variable costs:** $1,066,752**Contribution Margin:** $899,248**Fixed Costs**- **Salaries: manager, chef, brewer:** $132,000- **Utilities:** $28,000- **Marketing:** $14,000- **Advertising:** $36,000- **Other: cleaning, menus, misc:** $18,000- **Insurance and accounting:** $34,000- **Property taxes:** $24,000- **Depreciation:** $88,000- **Debt service (interest on debt):** $127,000**Total fixed costs:** $478,000**Operating Profit:** $421,248---**Required Tasks:**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 $170,000? $440,000?This detailed breakdown provides insight into the financial structure and operational efficiency of RBC, showcasing the relationship between sales, variable costs, fixed costs, and operating profit. Understanding these components is crucial for strategic planning and financial decision-making. 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.**Projected Financials:**- **Sales:** - Beer sales: $784,000 - Food sales: $940,000 - Other sales: $235,200 - **Total sales:** $1,960,000- Less cost of sales: $492,352- **Gross margin:** $1,467,648- Less marketing and administrative expenses: $1,046,400- **Operating profit:** $421,248In 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 break-even point?- What sales dollars will be required to make $170,000? To make $440,000?- 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?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. (Note: No additional detailed information from the second financial model is provided in the text.)

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Sales Beer sales (40 of total sales) Food sales (48 of total sales) Other sales (124 of total sales) Total sales Variable Costa $784,000 940,800 235,200 $1,960,000 Beer (13 of beer sales) Food (34 of food sales) Other (30 of other sales) Mages of employees (204 ot sales) Supplies (1 of sales) Utilities (Ss of sales) Otheri eredit card, mise. (3 of sales) Total variable costs Contribution margin Tixed Costs Salariesi manager, chef, brever Maintenance Advertising Otheri eleaning, menus, nise Insurance and accounting Property taxes Depreciation Debt service (interest on debt) Total fixed costs Operating proftit $101,920 319,872 70,560 392,000 19,600 98,000 50,800 $1,060,752 $ 899,248 $132,000 28,000 18,000 36,000 34,000 15,000 ,000 127,000 470,000 421,248 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. Whet sales dollars would be required to achieve an operating profit of $170,000? $440,000?

Sales Beer sales (40 of total sales) Food sales (48 of total sales) Other sales (124 of total sales) Total sales Variable Costa $784,000 940,800 235,200 $1,960,000 Beer (13 of beer sales) Food (34 of food sales) Other (30 of other sales) Mages of employees (204 ot sales) Supplies (1 of sales) Utilities (Ss of sales) Otheri eredit card, mise. (3 of sales) Total variable costs Contribution margin Tixed Costs Salariesi manager, chef, brever Maintenance Advertising Otheri eleaning, menus, nise Insurance and accounting Property taxes Depreciation Debt service (interest on debt) Total fixed costs Operating proftit $101,920 319,872 70,560 392,000 19,600 98,000 50,800 $1,060,752 $ 899,248 $132,000 28,000 18,000 36,000 34,000 15,000 ,000 127,000 470,000 421,248 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. Whet sales dollars would be required to achieve an operating profit of $170,000? $440,000?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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