Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customers-food 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 Food sales Other sales Total sales Less cost of sales Gross margin Less marketing and administrative expenses Operating profit $ 840,000 1,008,000 252,000 $2,100,000 472,920 $1,627,080 1,117,000 $ 510,080 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 $250,000? To make $530,000? 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) Food sales (48% of total sales) $ Other sales (12% of total sales) 840,000 1,008,000 252,000 Total sales $2,100,000 Variable Costs Beer (11% of beer sales) $ 92,400 Food (30% of food sales) 302,400 Other (31% of other sales) 78,120 Wages of employees (23% of sales) 483,000 Supplies (1% of sales) 21,000 Utilities (3% of sales) 63,000 Other: credit card, misc. (3% of sales) 63,000 Total variable costs Contribution margin $ $1,102,920 997,080 Fixed Costs Salaries: manager, chef, brewer $ 131,000 Maintenance 28,000 Advertising 12,000 Other: cleaning, menus, misc 38,000 Insurance and accounting 36,000 Property taxes 22,000 Depreciation Total fixed costs Operating profit 93,000 Debt service (interest on debt) 127,000 $ 487,000 $ 510,080