Arizona Microbrewery, Inc.: An Instructional Case on Management Decision Making
- Apply knowledge concerning cost-volume-profit (CVP) and how sales mix affects profits
- Solve an exercise
- Analyze the limitations of the CVP solution provided
- Evaluate issues or concerns with regard to adding a different product line (root beer)
- Answer case requirements 1, 2 and 6.
- Turn in one spreadsheet with your solution to requirement 1.
- Turn in a hardcopy of no more than three pages typed, double-spaced, 1” margins, 12-point font, clearly identifying when you have started your answer to requirement 2 and requirement 6 (use a header).
o 10 points for the spreadsheet (hard copy and also must be sent electronically so I can see formulas used).
o 10 points for the answer to item 2 – you should consider not only CVP limitations but also limitations to the mix strategy based on the information you have been provided. I am looking for reasoned arguments supported by information in the problem or your research (include citations for any research). Using outside sources will be considered very positively in evaluating your answer.
o 14 points for item 6 – again I am looking for reasoned arguments to support the issues or concerns identified with regard to adding a new product line. In addition, address threats or opportunities with the industry in general including how you believe the industry and macroeconomic environments have changed since the case time period of three years ago and how this might impact the decision to add a new product line or product mix. (Include citations for any research, using outside resources will be considered very positively in evaluating your answer.)
o 6 points for grammar, sentence/paragraph construction and organization.
Understanding CVP for HW Problem
Total Number of Cases Needed to Achieve $50,000 after Taxes = (Fixed Costs + After Tax Income)/Contribution Margin Ratio
You will have to have the operating income to back into the contribution margin you would need to end up with a $50,000 profit. Recall to determine the operating income, or before tax income, you have to solve for it (that is, operating income becomes X). To solve for x:
After Tax Income = Before Tax Income*(1-Tax Rate) OR
After Tax Income/(1-Tax Rate) = Before Tax Income
Fixed Costs = Given in Problem
Contribution Margin Ratio = Total Contribution Margin in $/Total Cases Sold (use historical information provided in the problem)
Allocating the total cases needed among each of the beers using historical data
Number of Cases by Beer = Total Number of Cases Needed *(Sales Mix Percentage)
Sales Mix Percentage = Beer’s Cases Sold/Total Cases Sold (historical information provided in the problem)