Hello. The first 4 pictures are the assigment. The last one are the questions. only questions #3 and #4 are the ones that I need answered. Thank you!
In 2015, Alex Montella quit his job at a large beer company to start his own brewery, Siena Brewery, Inc. (SI). His family supported his decision and invested in the business along with Alex. Siena Brewery doesn't pay income taxes. The company began operations on January 7, 2016 and now produces four labels of specialty beers (Perone Pale Ale, Moretti Bock, Nastro Blue Pilsner, and Menabrea Stout). In much of the United States, beer is sold in a "three-tier" system. Under this system, beer is manufactured by producers, sold to distributors, and then sold to retailers (such as liquor stores, drug stores, and grocery stores) Alex employs two salespeople who receive a fixed monthly salary plus a 8 percent commission. All beer is sold to beer distributors in cases of 24 bottles. Product sales and cost information for 2019 are shown in Exhibit 1 with additional information in Exhibit 2. Alex rents a facility that is used to make the beer, a refrigeration area to store the beer, and a small office area. SI Brewery has five machines with 9,000 total machine hours available per year to produce beer (assuming Si keeps its machines running on one shift with some normal maintenance, breaks, etc.). While there is an empty space in the facility that could be used to expand the beer operations, the company would need to purchase an additional grain hopper and brew house for about $100,000 (the current water system and process control system could be expanded to handle the new machine). Beers are aged in a refrigeration area prior to sale. The current refrigeration unit allows for different temperatures in different areas of the unit and the unit is usually running about 80 percent full. Keeping the refrigeration unit somewhat full helps reduce refrigeration costs. Additionally, since the company is so new, sales have been growing but erratically (from 2016 to 2017, sales growth was over 45 percent; however, from 2018 to 2019, sales growth was only 15 percent). Thus, keeping more beer on hand allows the company to meet the erratic demand without loss of sales. 5 7 B 9 0 1 2 33 34 35 36 37 Alex has not taken a salary since the business started. While the business has been generating a small profit, Alex has been reinvesting the earnings in the business. He wants to grow the business to generate more profit for his family and himself. Additionally, since the company is so new, sales have been growing but erratically (from 2016 to 2017, sales growth was over 45 percent; however, from 2018 to 2019, sales growth was only 15 percent). Thus, keeping more beer on hand allows the company to meet the erratic demand without loss of sales. Alex has not taken a salary since the business started. While the business has been generating a small profit, Alex has been reinvesting the earnings in the business. He wants to grow the business to generate more profit for his family and himself. Alex has been considering increasing the price on Menebrea Stout from $25.50 per case to $28.00 per case. He thinks that, with this price increase, unit sales will decrease from 4,050 cases to 3,620 cases per year. Alternatively, Alex could drop the price of Menebrea Stout to $23.75 per case. This is much closer to the Moretti Bock price as well as the Nastro Blue Pilsner, Based on his market research, he thinks that this will result in Menebrea Stout sales increasing to 4,615 cases per year. While the company has some cash on hand, neither the company nor Alex's family have another $100,000 to invest in the business right now for a new grain hopper and brew house. Since the business is new and has been showing only small profits, Alex has not been able to get a loan to expand the business. Instead, Alex wants to fully utilize the machines they already have. In 2019, they used around 8,000 machine hours (as shown in Exhibit 1) and the existing five machines have a total of 9,000 machine hours available during the year (assuming normal maintenance and some repairs needed during the year). Thus, the existing machines have around 1,000 additional hours available for use. Alex wants to keep producing and selling all four of his product lines because many of the beer distributors like buying from breweries that offer several different beers. However, he wants to direct the salespeople to emphasize a certain product when they are out talking to the beer distributors. Given the current machine availability, Alex is not sure what beer product line to tell the salespeople to emphasize in order to maximize his profits. Siena Brewery, Inc. Exhibit 1 Cost & Sales information for 2019 (yearly) Menabrea Perone Pale Nastro Blue Ale Moretti Bock Pilsner $ 20.00 $ 23.50 $ 22.75 $ Total Sales Price per case Stout 25.50 $ 2.50 $ 3.45 $ 5.75 $ 11.70 2.40 S 3.45 $ 5.68 $ 11.53 11.97 $ 2.65 $ 3.00 $ 5.80 $ 11.45 11.30 $ 3.25 4.95 6.34 14.54 10.96 S 8.30 $ Direct Materials per case Direct Labor per case Other Variable Costs per case Total Variable costs per case Contribution Margin per Case 2 3 14 Number of cases sold 15 16 Direct Labor Hours (DLH) per case 17 Total DLH 18 19 Machine Hours (MH) per case 20 Total MH 21 22 23 12,800 7,150 6,900 4,050 30,900 0.23 2,944.00 0.23 1,644.50 0.20 1,380.00 0.33 1,336.50 7,305.00 0.17 2,176.00 0.40 2,860.00 0.23 1,587.00 0.31 1,255.50 7,878.50 23 24 Contribution Margin Income Statement: 25 26 27 Total Sales Revenue 28 Total Variable Costs 29 Contribution Margin 30 Direct Fixed Costs 31 Segment Margin 32 Common Fixed Costs 33 Operating Income 34 Perone Pale Nastro Blue Menabrea Ale Moretti Bock Pilsner Stout Total $ 256,000.00 $ 168,025.00 $ 156,975.00 $ 103,275.00 $ 684,275.00 149,760.00 82,439.50 79,005.00 58,887.00 370,091.50 106,240.00 85,585.50 77,970.00 44,388.00 314,183.50 10,329.62 8,392.91 6,017.39 9,893.92 34,633.84 $ 95,910.38 $ 77,192.59 $ 71,952.61 $ 34,494.08 $ 279,549.66 $ 245,389.44 $ 34,160.22 34 35 Exhibits 2 36 Additional Cost Information for 2019 37 38 Detail of Total Variable Costs Total 39 Direct Material $ 80,607.50 40 Direct Labor $ 109,575.00 41 Production Supplies $ 26,064.41 42 Variable Portion of Maintenance $ 39,292.55 43 Variable Portion of Utilities $ 26,310.57 44 Variable Office Supplies (sales forms, etc) $ 3,490.03 45 Shipping costs $ 30,619.19 46 8% Sales Commission $ 54,742.00 47 $ 370,701.25 48 49 50 51 Detail of Total Fixed Costs (Direct + Indirect) 52 Brew Master / Quality Control manager $ 60,293.15 53 Receiving and Shipping department expenses $ 22,511.32 54 Depreciation $ 11,712.10 55 Facility costs (rent, taxes, insurance, etc) $ 78,938.15 56 Advertising & Marketing costs $ 22,994.91 57 Fixed portion of Maintenance (including IT supp $ 9,992.98 58 Fixed portion of Utilities (including refrigeration $ 10,390.37 59 Fixed portion of Office Supplies $ 4,305.66 60 Fixed Salary of Salespeople $ 32,221.81 61 Administrative staff to assist owner $ 26,662.83 62 Total Fixed Costs $ 280,023.28 63 64 65 R P S T N U 3. Ignore the desire to earn $80,000 in operating income and refer to the original data. Alex has a few options regarding Menabrea Stout pricing: Option 1: keep the sales price the same (no change). Option 2: increase the sales price Option 3: decrease the sales price. a. What would you recommend he do and why? b. Provide both quantitative and qualitative analysis. 4. Next, ignoring the Menabrea Stout information in question 3, consider Alex's question regarding what product line the salespeople should emphasize. Alex wants their sales efforts to maximize profits and utilize the company's current capacity. You need to take into consideration that Si has to deal with constrained resources and that you are only provided with clear data for machine hours. a. What would you tell him? Explain your rationale from a quantitative perspective. b. List and explain two qualitative factors that Alex should considered in this decision. 5. Consider the original cost information data. In 2019, SI has been contacted by two international companies regarding special orders, Leopold Corporation, a Canadian company, would like to order 1,500 cases of Moretti Bock at an average price of $17.00. Geox Corporation, an Australian company, would like to order 3,000 cases of Perone Pale Ale at an average price of $14.50. (Assume Si doesn't pay sales commission on special orders), a. Based on a quantitative analysis only should I accept one or both special orders; what is the support for your decision? b. State two qualitative issues, one internal to the company and one external to the company that should also be considered
