Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customersfood from the restaurant segment and freshly brewed beer from the beer production segment. Both segments are typically in the same building, which allows customers to see the beer-brewing process.

After months of research, the owners created a financial model that showed the following projections for the first year of operations.

Sales
Beer sales	$ 825,200
Food sales	1,134,650
Other sales	103,150
Total sales	$ 2,063,000
Less cost of sales	554,948
Gross margin	$ 1,508,052
Less marketing and administrative expenses	1,141,930
Operating profit	$ 366,122

In the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. The following represents a sample of the more common questions asked:

What is the break-even point?

What sales dollars will be required to make $310,000? To make $610,000?

Is the product mix reasonable? (Beer tends to have a higher contribution margin ratio than food, and therefore product mix assumptions are critical to profit projections.)

What happens to operating profit if the product mix shifts?

How will changes in price affect operating profit?

How much does a pint of beer cost to produce?

It became clear to the owners of RBC that the initial financial model was not adequate for answering these types of questions. After further research, RBC created another financial model that provided the following information for the first year of operations.

Sales
Beer sales (40% of total sales)	$ 825,200
Food sales (55% of total sales)	1,134,650
Other sales (5% of total sales)	103,150
Total sales		$ 2,063,000
Variable Costs
Beer (15% of beer sales)	$ 123,780
Food (35% of food sales)	397,128
Other (33% of other sales)	34,040
Wages of employees (25% of sales)	515,750
Supplies (1% of sales)	20,630
Utilities (3% of sales)	58,890
Other: credit card, miscellaneous (2% of sales)	39,260
Total variable costs		1,189,478
Contribution margin		$ 873,522
Fixed Costs
Salaries: manager, chef, brewer	$ 117,500
Maintenance	31,100
Advertising	21,100
Other: cleaning, menus, miscellaneous	41,100
Insurance and accounting	45,500
Property taxes	25,100
Depreciation	99,500
Debt service (interest on debt)	126,500
Total fixed costs		507,400
Operating profit		$ 366,122

Required:

Perform a sensitivity analysis by answering the following questions:

What is the break-even point in sales dollars for RBC?

What is the margin of safety for RBC?

What sales dollars would be required to achieve an operating profit of $310,000? $610,000?