compared to a single-product company? 10. Describe the assumptions made to simplify the cost-volume-profit analysis described in the chapter. 11. What is sensitivity analysis and how might it help those performing cost-volume-profit analysis? 12. Review "Business in Action 6.2". What were the owners concerned about with regard to projected profits? What were the results of the calculations made to address the owners concerns? Business in Action 6.2 Performing Sensitivity Analysis for a Brewpub Three entrepreneurs in California were looking for investors and banks to finance a new brewpub. Brewpubs focus on two segments: food from the restaurant segment, and freshly brewed beer from the beer production segment. All parties involved in the process of raising money-potential investors and banks, as well as the three entrepreneurs (ie, the owners)---wanted to know what the new business's projected profits would be After months of research, the owners created a financial made it provided this information Projected profits were slightly more than $300,000 for the first year (fron sales of 95 million) and were expected to in crease in each of the next four years. One of the owners asked, What if our projected revenues are too high? What will happen to profits if sales are lower than we expect? After all, we will have debt of well over $1 million, and I don't want anyone coming after my personal assets if the business doesn't have the money to pay!" Although all three owners felt the fin- ancial model was reasonably accurate, they decided to find the break-even point and the resulting margin of safety Because a brewpub does not sell units of a specific product, the owners found the break-even point in sales dollars. The owners knew the contribution margin ratio and all fixed costs from the financial model. With this information, they were able to calculate the break-even point and margin of safety. The worried owner was re- lieved to discover that sales could drop over 35 percent from initial projections before the brewpub incurred an operating loss. compared to a single-product company? 10. Describe the assumptions made to simplify the cost-volume-profit analysis described in the chapter. 11. What is sensitivity analysis and how might it help those performing cost-volume-profit analysis? 12. Review "Business in Action 6.2". What were the owners concerned about with regard to projected profits? What were the results of the calculations made to address the owners concerns? Business in Action 6.2 Performing Sensitivity Analysis for a Brewpub Three entrepreneurs in California were looking for investors and banks to finance a new brewpub. Brewpubs focus on two segments: food from the restaurant segment, and freshly brewed beer from the beer production segment. All parties involved in the process of raising money-potential investors and banks, as well as the three entrepreneurs (ie, the owners)---wanted to know what the new business's projected profits would be After months of research, the owners created a financial made it provided this information Projected profits were slightly more than $300,000 for the first year (fron sales of 95 million) and were expected to in crease in each of the next four years. One of the owners asked, What if our projected revenues are too high? What will happen to profits if sales are lower than we expect? After all, we will have debt of well over $1 million, and I don't want anyone coming after my personal assets if the business doesn't have the money to pay!" Although all three owners felt the fin- ancial model was reasonably accurate, they decided to find the break-even point and the resulting margin of safety Because a brewpub does not sell units of a specific product, the owners found the break-even point in sales dollars. The owners knew the contribution margin ratio and all fixed costs from the financial model. With this information, they were able to calculate the break-even point and margin of safety. The worried owner was re- lieved to discover that sales could drop over 35 percent from initial projections before the brewpub incurred an operating loss
