Please do Part 2 and 3

Rocky Mountain Microbrewery, LLC In 2015, Greg Johnson quit his engineering job to start his own brewery, Rocky Mountain Microbrewery, LLC, (RMM). His family supported his decision and invested in the business along with Greg. RMM began operations on January 4, 2015 and now produces four labels of specialty beers (Sultan Pale Ale, Blanca Peak, Ozo Amber Pilsner, and South River Stout). An explanation of the beer-making process is shown in Appendix A. In much of the United States (including Colorado), beer is sold in a three-tier system". Under this system, beer is manufactured by producers, sold to distributors, who then sell to retailers (such as liquor stores, drug stores, and grocery stores). Greg employs two salespeople who receive a fixed monthly salary plus an 8 percent commission. All beer is sold to beer distributors (primarily in the Western United States) in cases of 24 bottles. Product sales and cost information for 2017 are shown in Exhibit I with additional information in Exhibit 2. Greg rents a facility that is used to make the beer, a refrigeration area to store the beer, and a small office area. RMM has five machines with 9,300 total machine hours available per year to produce beer (assuming RMM remains 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). As discussed in Appendix A, 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 because opening and closing the refrigeration unit when it is very empty results in a greater temperature drop as more warm air gets into the refrigeration unit compared to when the refrigeration unit is very full. Thus, keeping the unit somewhat full helps reduce refrigeration costs. Additionally, since the company is so new, sales have been growing but erratic (from 2015 to 2016, sales growth was over 45 percent; however, from 2016 to 2017, sales growth was only 12 percent). Thus, keeping more beer on hand allows the company to meet the erratic demand without loss of sales. Greg has not taken a salary since the business started. While the business has been generating a small profit, Greg has been reinvesting the camings in the business. He wants to grow the business to generate more profit for his family and himself. Greg has been considering increasing the price on South River Stout from $26.50 per case to $29.00 per case. He thinks that with this price increase, unit sales will decrease from 4,184 cases to 3,750 cases per year. However, this would only reduce total annual Stout revenues to $ 108,750 from $110,876. Alteratively, Greg could drop the price of South River Stout to $25 per case. This is much closer to the Blanca Peak price as well as the Ozo Amber Pilsner. Based on his market research, he thinks that this will result in Stout sales increasing to 4,700 cases per year. He is leaning toward this alternative, as this will increase Stout revenues from $110,876 to S117.500 per year. While the company has some cash on hand, neither the company nor Greg'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, Greg has not been able to get a loan to expand the business. Instead, Greg wants to fully utilize the machines they already have. In 2017, they used a little over 8.300 machine hours (as shown in Exhibit I) and the existing five machines have a total of 9.300 machine hours available during the year (assuming normal maintenance and some repairs needed during the year). Thus, the existing machines have approximately 1,000 additional hours available for use. Greg 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, Greg wants to direct the sales people to emphasize a certain product when they are out talking to the bear distributors. Given the current machine availability, Greg is not sure what beer product line to tell the sales people to emphasize in order to maximize his profits. Finally, Greg and his family love root beer. Root beer follows a somewhat similar process to beer in that the ingredients are mixed together to form a culture that then goes through fermenting, filtering, and filling. Root beer would not need to be aged or stored in the refrigerator. There is an empty area in the current microbrewery facility that could be dedicated to making root beer. As a result, Greg has been talking with his family about producing and selling a line of specialty root beer. Root beer would be produced using different machinery rather than the existing five beer machines. Greg's sister knows someone who is getting out of the soda business and would be willing to sell the used machinery needed to make the root beer for $8,000. Based on market research he has done, Greg thinks that he could charge $16.50 per case of root beer. Based on the same market research, there is a lot of uncertainty in how many cases of root beer the company could sell. Greg is less familiar with the root beer market and there is a wide range in sales of specialty root beer in the local groceries. Based on his understanding of the market, he thinks he could sell between 3,000 and 12,000 cases of root beer per year with likely sales of about 6,000 cases. Root beer could be sold to some of his current distributors. However, soda does not need to be sold through the three-tier system that is required for alcohol sales. Therefore, much of root beer sales would be directly to upscale groceries such as PJ's Gourmet Market in Durango, and King Soopers with locations throughout Colorado. Greg could produce the root beer in-house or out- source the production Greg has talked with another company who could produce the root beer for RMM using Greg's recipe and RMM could sell it as their brand (this option is referred to as "private label"). It could be purchased from this other company for $13.05 per case. RMM would still need to incur some variable handling costs and some minor fixed costs. Alternatively, RMM could produce the root beer in-house. See Exhibit 3 for estimated cost information. CASE REQUIREMENTS You have been hired as a consultant to help Greg with the business. Greg will be out of town (and out of reach) until April 29, but after your initial meeting with Greg, he has made the following requests of your consulting firme Help with 4 specific business operation decisions The development of a Balanced Scorecard A detailed memo to the CEO (Greg) detailing what additional questions you have for Greg after you have addressed concerns and what assumptions you made during your work. Your goal is to develop a full package to deliver to Greg upon his return. The package should be extremely professional and fully address the three items described above. Part 1: Client Business Decisions 1. After Tax Profit Analysis: Greg has a desire to cam $50,000 (after tax). Ignoring any current plans, using last year's data and sales mix: . How many cases would Greg need to sell in order to earn $50,000 after tax? How many cases would need to be Ozo Amber Pilsner? Please provide support for your malysis. You know you need to identify and explain at least three issues related to your analysis and the assumptions employed in your analysis. Greg is a very experienced businessperson and your assumptions and concerns/issues identified must be based on sound business logic and reasoning, not just high-level statements about the business (.e. why is RMM charging a certain price for a productor how RMM can reduce material costs). 2. Pricing Decision: As Greg described, he has a few options regarding South River Stout pricing. Ignoring the desire to earn $50,000 after tax and referring to the original data, what would you recommend Greg do and why for the following options provide both quantitative and qualitative analysis): Keep the sales price the same (no change) Increase the sales price c. Decrease the sales price 3. Product Focus & Capacity: Next, ignoring the South River Stout information, consider Greg's question regarding what product line the sales people should emphasize. Greg wants their sales efforts to maximize profits and utilize the company's current capacity What do you tell him? Explain your rationale 4. Root Beer Lne: Greg wants to know your opinion conceming the addition of a root beer line. Please provide a recommendation. Also, discuss your issues concens about adding the root beer line and the potential decision to produce in-house or out-source. The issues concems should include both numeric and non-numeric issues. Do not just bullet point all kinds of items, instead, talk about specifics and how they relate to this company situation and why they are important to consider Part 2: Balanced Scorecard Greg mentioned that he is struggling with some aspects of his company's growth. Specifically, he is struggling to move all aspects of his company towards a united goal. His is also concerned that this will become more of a problem as he hires additional employees. In order to assist Greg with this, you have decided to build a Balanced Scorecard for RMM. Provide RMM with a fully developed Balanced Scorecard. Greg suggests that his firm is very similar to other firms in the microbrew industry, thus, if there are aspects of the Balanced Scorecard that require additional information than was provided by Greg, you should do some market research to assist you in the development of the Balanced Scorecard. Part 3: Memo to Greg Consistent with a normal client consultant relationship, the client has provided you with all information that they feel is relevant for you to help them make their business decisions and develop a Balanced Scorecard. However, there is always ambiguity when trying to make business decisions! Thus, although you must fully address all the client's needs, during that process your team may feel that additional information would have been beneficial. Your goal is to reduce this ambiguity via clear and concise communication with the CEO. Thus, in Section 1 of your memo to the CEO, provide questions that you believe may significantly impact your provided recommendations or balanced scorecard or would greatly improve your understanding of the client and allow you to provide better recommendations in the future. In Section 2 of your memo, clearly communicate assumptions you made in addressing the client's requests when you felt additional information may have been impactful (these assumptions should also be documented where the assumptions were made in the other portions of your deliverable). EXHIBIT 1 2017 Cost and Sales Information Panel A: Per Case Information Total Sales Price Direct Materials Price per case Direct Labor per case Variable Overhead per ease Total Variable Cost per case Contribution Margin per case Sultan Pale Ale Blanca Peak Ozo Amber Pilzner South River Stout 21.00 $ 24.50 S 23.50 S 26.50 $ 2.75 S 2.90S 3.15 S 4.00 $ 3.75 S 3.75 S 3.00 S 5.25 $ 5.90 S 6.18 S 6.10 S 6.34 $ 12.40 S 12.83 $ 12.25 S 15.59 $ 8.60 S 11.67 s 11.25 $ 10.91 Cases Sold last year 12.593 7,126 6.827 4.184 30,730 Direct Labor Hours per case Total Direct Labor Hours last year 0.25 3,148.25 0.28 1.781.50 0.20 1,365.40 0.35 1,464.40 7,759.35 0.40 S 2.850.40 $ 0.25 S 1,706.75 $ 0.30 1.255.20 8330.95 Machine Hours per case S 0.20 S Total Machine Hours last year 2,318.60 S Panel B: Contribution Margin Income Statement Sales Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Operating Income Taxes (35%) Net Income Sultan Pale Ale Blanca Peak Ozo Amber Pilzner South River Stout Total $ 264,453.00 174.587.00 $ 160,434.50 S 110,876.00 $710.350.50 $ 156,153.20 S 91.426.58 83,630.75 s 65.228.56 $ 396.439.09 S 108,299.80 S 83.160.42 s 76,803.75 S 45,647.44 $ 313.911.41 $ 10.329.62 S 8.392.91 $ 6,017.39 9.893.92 S 34.633.84 $ 97,970.18 S 74.767.51 70,786.36 S 35,753.52 $ 279.277.57 $ 245,389.44 S 33.888.13 S 11.860.85 S 22.027.28 EXHIBIT 2 Additional Cost Information Panel A: Details of Total Variable Costs Direct Material $ 93,537.20 Direct Labor $ 116,393.25 Production Supplies $ 26,064.41 Variable Portion of Maintenance $ 40,892.55 Variable Portion of Utilities $ 27.610.57 Variable Office Supplies (sales forms, etc.) 3,493.88 Shipping Costs $ 31,619.19 8% Sales Commission $ 56,828.04 Total Variable Costs S 396.439.09 Panel B: Detail of Total Fixed Costs (Direct + Indirect) Brew Master Quality Control manager S 60.293.15 Receiving and Shipping department expenses $ 22,511.32 Depreciation $ 11,712.10 Facility costs (rent, taxes, insurance, etc) $ 78.938.15 Advertising & Marketing costs $ 22.994.91 Fived portion of Maintenance (including IT support) 9,992.98 Fived portion of Utilities including refrigeration) $ 10,390,37 Fired portion of Office Supplies $ 4,305.66 Fixed Salary of Salespeople $32.221.81 Administrative staff to assist owner $ 26,662.83 Total Fixed Costs S 280.023.28 Exhibit 3 Root Beer Cost Information Panel A: Alternative 1 - Produce In-house Direct Materials per case Direct Labor per case Variable Overhead per case Total Variable costs per case 1.75 2.25 $ $ $ s 7.60 Additional Fixed costs (per year) $37,640.00 Panel B: Alternative 2 - Outsource Production Purchase price per case $ Variable Overhead per case S Total Variable costs per case s 13.05 0.10 13.15 Additional Fixed costs (per year) $ 6,000.00 Beer-Making Process Beer is the overall generic term for fermented malt beverages. There are only two kinds of beer: ale and lager. Within those two broad categories, there are many styles. Majorale styles are pale ale, India Pale Ale (IPA), porter, stout, and barleywine. Among the major lager styles, are pilsner, Marzen, bock, and clunkles (dark lager). RMM makes two ales (Sultan Pale Ale and South River Stout) and two lagers (Ozo Amber Pilsner and Blanca Peak Bock). It is the yeast that is the significant difference between the ale and the lager. Ale yeasts coagulate loosely at the top of the fermentation tank. Given the type of yeast, ales ferment best between 64 to 70 degrees Fahrenheit. Lager yeasts are more successful at colder temperatures, typically 50 to 55 degrees Fahrenheit and coagulate closer to the bottom of the fermentation tank. Lager yeasts also tend to ferment more aggressively, leaving behind less residual sweetness and flavor than ales. Direct Materials Beer primarily consists of four ingredients: water, barley, hops, and yeast. A clarifying agent is also used in the beer-making process. The different types of beer require different proportions of these ingredients and even slightly different ingredients (eg, pale ale uses a pale malted harley while stout is made using a darker roasted barley). Brewing Process Work in the brewery is typically divided in to cight steps: Mashing, Lautoring, Boiling, Fermenting and Conditioning, Filtering, Filling, and Aging. Masting Mashing is the first process in brewing. The barley grains are mixed with water in a large vessel. This mixture is heated with periodic breaks, or rests, at certain temperatures to allow enzymes in the malted grains to break down the starch in the grain into sugars. Lawtering Lautering is when the mash is separated into a liquid and the residual grain. There are two stages to lautering. In the first stage, called Wort Run-off, aliquid for extract) is separated in an undiluted form from the used grains. The second stage is called sparging. During sparging, the extract that remains with the grains is rinsed off with hot water. The results of these two stages are combined and the result is a dark, sugary liquid called Wort. This is returned to the original Mashing vessel Balling Boiling the Wort in the vessel ensures that the mixture is sterile and prevents infection During the boiling step, hops are added to the Wort. The hops contribute bitterness, aroma, and flavor compounds to the beer. The boiling must be continuous and intense (rolling boil) and typically lasts between 60 and 120 minutes, depending on its intensity, when the hops are added and the amount of Wort expected to evaporate. The Wort is then cooled before the fermentation stage. Fermenting and Conditioning The cooled Wort is put into a fermentation tank and yeast is added, which starts the fermentation process. This is also the point at which the product is first called beer. It is during this stage that fermentable sugars are metabolized into alcohol and carbon dioxide (the bubbles in beer). As noted above, fermentation temperatures are very different for ales versus lagers. Fermentation takes about a week. When the sugars in the fermenting beer have been almost completely digested, the fermentation slow down and the yeast cells will naturally start to die off and begin to settle to the bottom of the tank. At RMM, the fermentation tanks are equipped with cooling jackets. Therefore, conditioning can take place in the same tank as fermentation. Conditioning (also called "maturation") is when beer is cooled in the tanks to allow the yeast to settle to the bottom of the tank Conditioning allows the flavor of the beer to become smoother and is a natural filtration proces (removing cloudy material from the beer). Filtering The beer that comes out of the fermentation tank must be filtered prior to boiling. Filtering the beer stabilizes flavor and gives beer its gloss or "shine. Filtering removes much of the yeast and any solids (es, hops and other grain particles) that remain in the beer. The filling process (also called "packaging ") is putting the beer into the bottles in which it will leave the brewery. At this point, carbon dioxide is added to the bottling process to increase the carbon dioxide in the beer. Cases of beer (consisting of 24 bottles) are then put into aging. Aging Beer is stored (aged or "lagered") in the refrigerator unit and the temperature and length of the aging will vary based on the type of beer. Ales are usually aged no more than a few weeks. The aging process is generally done at 40 to 55 degrees Fahrenheit . Lagers are similarly aged but at much lower temperatures, 32 to 45 degrees Fahrenheit, and for a much longer time (typically months). Lagering creates a cleaner, clearer beer. The refrigeration unit allows for different temperatures in different areas of the unit. Rocky Mountain Microbrewery, LLC In 2015, Greg Johnson quit his engineering job to start his own brewery, Rocky Mountain Microbrewery, LLC, (RMM). His family supported his decision and invested in the business along with Greg. RMM began operations on January 4, 2015 and now produces four labels of specialty beers (Sultan Pale Ale, Blanca Peak, Ozo Amber Pilsner, and South River Stout). An explanation of the beer-making process is shown in Appendix A. In much of the United States (including Colorado), beer is sold in a three-tier system". Under this system, beer is manufactured by producers, sold to distributors, who then sell to retailers (such as liquor stores, drug stores, and grocery stores). Greg employs two salespeople who receive a fixed monthly salary plus an 8 percent commission. All beer is sold to beer distributors (primarily in the Western United States) in cases of 24 bottles. Product sales and cost information for 2017 are shown in Exhibit I with additional information in Exhibit 2. Greg rents a facility that is used to make the beer, a refrigeration area to store the beer, and a small office area. RMM has five machines with 9,300 total machine hours available per year to produce beer (assuming RMM remains 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). As discussed in Appendix A, 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 because opening and closing the refrigeration unit when it is very empty results in a greater temperature drop as more warm air gets into the refrigeration unit compared to when the refrigeration unit is very full. Thus, keeping the unit somewhat full helps reduce refrigeration costs. Additionally, since the company is so new, sales have been growing but erratic (from 2015 to 2016, sales growth was over 45 percent; however, from 2016 to 2017, sales growth was only 12 percent). Thus, keeping more beer on hand allows the company to meet the erratic demand without loss of sales. Greg has not taken a salary since the business started. While the business has been generating a small profit, Greg has been reinvesting the camings in the business. He wants to grow the business to generate more profit for his family and himself. Greg has been considering increasing the price on South River Stout from $26.50 per case to $29.00 per case. He thinks that with this price increase, unit sales will decrease from 4,184 cases to 3,750 cases per year. However, this would only reduce total annual Stout revenues to $ 108,750 from $110,876. Alteratively, Greg could drop the price of South River Stout to $25 per case. This is much closer to the Blanca Peak price as well as the Ozo Amber Pilsner. Based on his market research, he thinks that this will result in Stout sales increasing to 4,700 cases per year. He is leaning toward this alternative, as this will increase Stout revenues from $110,876 to S117.500 per year. While the company has some cash on hand, neither the company nor Greg'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, Greg has not been able to get a loan to expand the business. Instead, Greg wants to fully utilize the machines they already have. In 2017, they used a little over 8.300 machine hours (as shown in Exhibit I) and the existing five machines have a total of 9.300 machine hours available during the year (assuming normal maintenance and some repairs needed during the year). Thus, the existing machines have approximately 1,000 additional hours available for use. Greg 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, Greg wants to direct the sales people to emphasize a certain product when they are out talking to the bear distributors. Given the current machine availability, Greg is not sure what beer product line to tell the sales people to emphasize in order to maximize his profits. Finally, Greg and his family love root beer. Root beer follows a somewhat similar process to beer in that the ingredients are mixed together to form a culture that then goes through fermenting, filtering, and filling. Root beer would not need to be aged or stored in the refrigerator. There is an empty area in the current microbrewery facility that could be dedicated to making root beer. As a result, Greg has been talking with his family about producing and selling a line of specialty root beer. Root beer would be produced using different machinery rather than the existing five beer machines. Greg's sister knows someone who is getting out of the soda business and would be willing to sell the used machinery needed to make the root beer for $8,000. Based on market research he has done, Greg thinks that he could charge $16.50 per case of root beer. Based on the same market research, there is a lot of uncertainty in how many cases of root beer the company could sell. Greg is less familiar with the root beer market and there is a wide range in sales of specialty root beer in the local groceries. Based on his understanding of the market, he thinks he could sell between 3,000 and 12,000 cases of root beer per year with likely sales of about 6,000 cases. Root beer could be sold to some of his current distributors. However, soda does not need to be sold through the three-tier system that is required for alcohol sales. Therefore, much of root beer sales would be directly to upscale groceries such as PJ's Gourmet Market in Durango, and King Soopers with locations throughout Colorado. Greg could produce the root beer in-house or out- source the production Greg has talked with another company who could produce the root beer for RMM using Greg's recipe and RMM could sell it as their brand (this option is referred to as "private label"). It could be purchased from this other company for $13.05 per case. RMM would still need to incur some variable handling costs and some minor fixed costs. Alternatively, RMM could produce the root beer in-house. See Exhibit 3 for estimated cost information. CASE REQUIREMENTS You have been hired as a consultant to help Greg with the business. Greg will be out of town (and out of reach) until April 29, but after your initial meeting with Greg, he has made the following requests of your consulting firme Help with 4 specific business operation decisions The development of a Balanced Scorecard A detailed memo to the CEO (Greg) detailing what additional questions you have for Greg after you have addressed concerns and what assumptions you made during your work. Your goal is to develop a full package to deliver to Greg upon his return. The package should be extremely professional and fully address the three items described above. Part 1: Client Business Decisions 1. After Tax Profit Analysis: Greg has a desire to cam $50,000 (after tax). Ignoring any current plans, using last year's data and sales mix: . How many cases would Greg need to sell in order to earn $50,000 after tax? How many cases would need to be Ozo Amber Pilsner? Please provide support for your malysis. You know you need to identify and explain at least three issues related to your analysis and the assumptions employed in your analysis. Greg is a very experienced businessperson and your assumptions and concerns/issues identified must be based on sound business logic and reasoning, not just high-level statements about the business (.e. why is RMM charging a certain price for a productor how RMM can reduce material costs). 2. Pricing Decision: As Greg described, he has a few options regarding South River Stout pricing. Ignoring the desire to earn $50,000 after tax and referring to the original data, what would you recommend Greg do and why for the following options provide both quantitative and qualitative analysis): Keep the sales price the same (no change) Increase the sales price c. Decrease the sales price 3. Product Focus & Capacity: Next, ignoring the South River Stout information, consider Greg's question regarding what product line the sales people should emphasize. Greg wants their sales efforts to maximize profits and utilize the company's current capacity What do you tell him? Explain your rationale 4. Root Beer Lne: Greg wants to know your opinion conceming the addition of a root beer line. Please provide a recommendation. Also, discuss your issues concens about adding the root beer line and the potential decision to produce in-house or out-source. The issues concems should include both numeric and non-numeric issues. Do not just bullet point all kinds of items, instead, talk about specifics and how they relate to this company situation and why they are important to consider Part 2: Balanced Scorecard Greg mentioned that he is struggling with some aspects of his company's growth. Specifically, he is struggling to move all aspects of his company towards a united goal. His is also concerned that this will become more of a problem as he hires additional employees. In order to assist Greg with this, you have decided to build a Balanced Scorecard for RMM. Provide RMM with a fully developed Balanced Scorecard. Greg suggests that his firm is very similar to other firms in the microbrew industry, thus, if there are aspects of the Balanced Scorecard that require additional information than was provided by Greg, you should do some market research to assist you in the development of the Balanced Scorecard. Part 3: Memo to Greg Consistent with a normal client consultant relationship, the client has provided you with all information that they feel is relevant for you to help them make their business decisions and develop a Balanced Scorecard. However, there is always ambiguity when trying to make business decisions! Thus, although you must fully address all the client's needs, during that process your team may feel that additional information would have been beneficial. Your goal is to reduce this ambiguity via clear and concise communication with the CEO. Thus, in Section 1 of your memo to the CEO, provide questions that you believe may significantly impact your provided recommendations or balanced scorecard or would greatly improve your understanding of the client and allow you to provide better recommendations in the future. In Section 2 of your memo, clearly communicate assumptions you made in addressing the client's requests when you felt additional information may have been impactful (these assumptions should also be documented where the assumptions were made in the other portions of your deliverable). EXHIBIT 1 2017 Cost and Sales Information Panel A: Per Case Information Total Sales Price Direct Materials Price per case Direct Labor per case Variable Overhead per ease Total Variable Cost per case Contribution Margin per case Sultan Pale Ale Blanca Peak Ozo Amber Pilzner South River Stout 21.00 $ 24.50 S 23.50 S 26.50 $ 2.75 S 2.90S 3.15 S 4.00 $ 3.75 S 3.75 S 3.00 S 5.25 $ 5.90 S 6.18 S 6.10 S 6.34 $ 12.40 S 12.83 $ 12.25 S 15.59 $ 8.60 S 11.67 s 11.25 $ 10.91 Cases Sold last year 12.593 7,126 6.827 4.184 30,730 Direct Labor Hours per case Total Direct Labor Hours last year 0.25 3,148.25 0.28 1.781.50 0.20 1,365.40 0.35 1,464.40 7,759.35 0.40 S 2.850.40 $ 0.25 S 1,706.75 $ 0.30 1.255.20 8330.95 Machine Hours per case S 0.20 S Total Machine Hours last year 2,318.60 S Panel B: Contribution Margin Income Statement Sales Variable Costs Contribution Margin Direct Fixed Costs Segment Margin Common Fixed Costs Operating Income Taxes (35%) Net Income Sultan Pale Ale Blanca Peak Ozo Amber Pilzner South River Stout Total $ 264,453.00 174.587.00 $ 160,434.50 S 110,876.00 $710.350.50 $ 156,153.20 S 91.426.58 83,630.75 s 65.228.56 $ 396.439.09 S 108,299.80 S 83.160.42 s 76,803.75 S 45,647.44 $ 313.911.41 $ 10.329.62 S 8.392.91 $ 6,017.39 9.893.92 S 34.633.84 $ 97,970.18 S 74.767.51 70,786.36 S 35,753.52 $ 279.277.57 $ 245,389.44 S 33.888.13 S 11.860.85 S 22.027.28 EXHIBIT 2 Additional Cost Information Panel A: Details of Total Variable Costs Direct Material $ 93,537.20 Direct Labor $ 116,393.25 Production Supplies $ 26,064.41 Variable Portion of Maintenance $ 40,892.55 Variable Portion of Utilities $ 27.610.57 Variable Office Supplies (sales forms, etc.) 3,493.88 Shipping Costs $ 31,619.19 8% Sales Commission $ 56,828.04 Total Variable Costs S 396.439.09 Panel B: Detail of Total Fixed Costs (Direct + Indirect) Brew Master Quality Control manager S 60.293.15 Receiving and Shipping department expenses $ 22,511.32 Depreciation $ 11,712.10 Facility costs (rent, taxes, insurance, etc) $ 78.938.15 Advertising & Marketing costs $ 22.994.91 Fived portion of Maintenance (including IT support) 9,992.98 Fived portion of Utilities including refrigeration) $ 10,390,37 Fired portion of Office Supplies $ 4,305.66 Fixed Salary of Salespeople $32.221.81 Administrative staff to assist owner $ 26,662.83 Total Fixed Costs S 280.023.28 Exhibit 3 Root Beer Cost Information Panel A: Alternative 1 - Produce In-house Direct Materials per case Direct Labor per case Variable Overhead per case Total Variable costs per case 1.75 2.25 $ $ $ s 7.60 Additional Fixed costs (per year) $37,640.00 Panel B: Alternative 2 - Outsource Production Purchase price per case $ Variable Overhead per case S Total Variable costs per case s 13.05 0.10 13.15 Additional Fixed costs (per year) $ 6,000.00 Beer-Making Process Beer is the overall generic term for fermented malt beverages. There are only two kinds of beer: ale and lager. Within those two broad categories, there are many styles. Majorale styles are pale ale, India Pale Ale (IPA), porter, stout, and barleywine. Among the major lager styles, are pilsner, Marzen, bock, and clunkles (dark lager). RMM makes two ales (Sultan Pale Ale and South River Stout) and two lagers (Ozo Amber Pilsner and Blanca Peak Bock). It is the yeast that is the significant difference between the ale and the lager. Ale yeasts coagulate loosely at the top of the fermentation tank. Given the type of yeast, ales ferment best between 64 to 70 degrees Fahrenheit. Lager yeasts are more successful at colder temperatures, typically 50 to 55 degrees Fahrenheit and coagulate closer to the bottom of the fermentation tank. Lager yeasts also tend to ferment more aggressively, leaving behind less residual sweetness and flavor than ales. Direct Materials Beer primarily consists of four ingredients: water, barley, hops, and yeast. A clarifying agent is also used in the beer-making process. The different types of beer require different proportions of these ingredients and even slightly different ingredients (eg, pale ale uses a pale malted harley while stout is made using a darker roasted barley). Brewing Process Work in the brewery is typically divided in to cight steps: Mashing, Lautoring, Boiling, Fermenting and Conditioning, Filtering, Filling, and Aging. Masting Mashing is the first process in brewing. The barley grains are mixed with water in a large vessel. This mixture is heated with periodic breaks, or rests, at certain temperatures to allow enzymes in the malted grains to break down the starch in the grain into sugars. Lawtering Lautering is when the mash is separated into a liquid and the residual grain. There are two stages to lautering. In the first stage, called Wort Run-off, aliquid for extract) is separated in an undiluted form from the used grains. The second stage is called sparging. During sparging, the extract that remains with the grains is rinsed off with hot water. The results of these two stages are combined and the result is a dark, sugary liquid called Wort. This is returned to the original Mashing vessel Balling Boiling the Wort in the vessel ensures that the mixture is sterile and prevents infection During the boiling step, hops are added to the Wort. The hops contribute bitterness, aroma, and flavor compounds to the beer. The boiling must be continuous and intense (rolling boil) and typically lasts between 60 and 120 minutes, depending on its intensity, when the hops are added and the amount of Wort expected to evaporate. The Wort is then cooled before the fermentation stage. Fermenting and Conditioning The cooled Wort is put into a fermentation tank and yeast is added, which starts the fermentation process. This is also the point at which the product is first called beer. It is during this stage that fermentable sugars are metabolized into alcohol and carbon dioxide (the bubbles in beer). As noted above, fermentation temperatures are very different for ales versus lagers. Fermentation takes about a week. When the sugars in the fermenting beer have been almost completely digested, the fermentation slow down and the yeast cells will naturally start to die off and begin to settle to the bottom of the tank. At RMM, the fermentation tanks are equipped with cooling jackets. Therefore, conditioning can take place in the same tank as fermentation. Conditioning (also called "maturation") is when beer is cooled in the tanks to allow the yeast to settle to the bottom of the tank Conditioning allows the flavor of the beer to become smoother and is a natural filtration proces (removing cloudy material from the beer). Filtering The beer that comes out of the fermentation tank must be filtered prior to boiling. Filtering the beer stabilizes flavor and gives beer its gloss or "shine. Filtering removes much of the yeast and any solids (es, hops and other grain particles) that remain in the beer. The filling process (also called "packaging ") is putting the beer into the bottles in which it will leave the brewery. At this point, carbon dioxide is added to the bottling process to increase the carbon dioxide in the beer. Cases of beer (consisting of 24 bottles) are then put into aging. Aging Beer is stored (aged or "lagered") in the refrigerator unit and the temperature and length of the aging will vary based on the type of beer. Ales are usually aged no more than a few weeks. The aging process is generally done at 40 to 55 degrees Fahrenheit . Lagers are similarly aged but at much lower temperatures, 32 to 45 degrees Fahrenheit, and for a much longer time (typically months). Lagering creates a cleaner, clearer beer. The refrigeration unit allows for different temperatures in different areas of the unit