Three entrepreneurs were looking to start a new brewpub near Sacramento, California, callsd 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:

In the process of pursuing capital through private investors and flnancial institutions, $RBC$ was approached with several questions. The

following represents a sample of the more common quastions asked:

$.$ What is the breakeren point?

What sales dollars will be required to make $$200,000?$ To make $$500,000?$

Is the product mix reasonable? $($Beer tends to have a higher contribution margin ratio than food, and therefore product mix assumptions

are critical to proft 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 ormers of RBC that the initial flnancial model was not adequate for answering these types of questions. After further

research. RBC created another flnancial model that provided the following information for the first year of operations:

Requived

a$.$ What were potential investors and flnancial institutions concerned with when asking the questions listed in the case?

b$.$ Why was the first flnancial model prepared by RBC inappropriate for answering most of the questions asked by investors

and bankers? Be speciflc.

a$.$ If you were deciding whether to invest in $RBC,$ how would you quickly check the reasonableness of $RBC\text{'}$s projected

operating profit?

c$.$ Why is it diffeult to answer the question: How much does a pint of beer cost to produce?

e$.$ 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 $RBC?$

Why can't $RBC$ find the break$-$even point in units?

What sales dollars would be required to achieve an operating profit of $$200,000?$ $$500,000?$ What assumptions

are made in this calculation?