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College of Washington EMBA Program Regional 20 Conquistador Beer Suggested Solution October 10, 2003

Approach to the Problem Calculate a Demand Forecast for the Company. At that point figure Break Even Volume and look at them. Request Forecast = Industry Demand * Market Share for Conquistador Beer BEV = Fixed Costs/(Price – Variable Costs)

Calculation of Industry Demand Method 1: Uses Tables An and B. Per capita brew utilization * populace **Assumes straight line development.

Calculation of Industry Demand Method 2: Uses Table E. "Charges Paid Approach" Assuming a straight line development, request will be 3.07 million gallons in 2003.

Market Share Projection Market Share Estimates are accessible in Study C. We appraise 23% piece of the overall industry in 2003. Request Forecast = 23% * 3.1 million gallons = 713,000 gallons

Investments The speculations given for the situation (Table A) neglect to incorporate assessments of money and records receivable. Table F gives a gauge of the rate of aggregate resources required at 16.3% $1,589,000/(1-.163) = $1,898,447

Fixed Cash Flows (Annual) The case (Table B) does exclude: Salary cost and advantages. Gauge that 10% of aggregate pay is as motivations, and 30% is in non-pay benefits. $425,000/(1-.1)*(1/(1-.3)) = $674,603 Advertising. Accept cost is 3% of offers 713,000*.03*$6.40 = $136,896 (note: cost will be talked about later) Debt retirement/intrigue. Expect 20 year credit at 8%. Larry acquires $1,548,000 ($1,898,447 - $350,000 that he invests). Recurring installment of $155,526 every year Travel and other related costs: $40,000/year

Fixed Cash Flows (Annual) Depreciation is not an income, and in this manner ought not be incorporated. The updated altered expenses are as per the following: Utilities and Telephone $46,000 Insurance $112,000 Property Taxes $18,000 Marketing/Co-operation Advertising $136,896 Debt Retirement and Interest Payments $155,526 Travel and Related Expenses $40,000 TOTAL $1,183,025

Unit Contribution Price can be assessed utilizing Exhibit I. We accept that Conquistador is a premium brew, and can offer at a discount value equivalent to the normal cost of the main three lagers recorded ($3.61 for a 6-pack). This converts into $6.40/gallon (128 ounces for every gallon, 12 ounces for each lager). Likewise, barrels will be sold at a rate of 1/3 the gallons of containers and jars. Cost for barrels is 45% of container/can cost.

Unit Contribution **The discount cost is computed by increasing the cost of products sold (which from Exhibit F is 80.3% of offers) by the cost per gallon. Unit commitment is subsequently $1.09 ($5.52 - $4.43)

Break Even Volume BEV = Fixed Costs/Unit Contribution = $1,183,025/$1.09 = 1,087,900 gallons Our request estimate was 713,000 gallons. We will in all likelihood not earn back the original investment. Larry ought to most likely not put resources into this business!!

Total Research Required… Exhibits C,E,F, and I for an aggregate cost of $3,350 And $4,150 left over!

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