University of Washington EMBA Program Regional 20. Conquistador Beer Suggested Solution October 10, 2003. Approach to the Problem. Calculate a Demand Forecast for the Company. Then calculate Break Even Volume and compare them.
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Conquistador Beer Suggested Solution
October 10, 2003
Per capita beer consumption * population
**Assumes straight line growth.
“Taxes Paid Approach”
Assuming a straight line growth, demand will be 3.07 million gallons in 2003.
Demand Forecast = 23% * 3.1 million gallons
$1,589,000 / (1-.163) = $1,898,447
$425,000/(1-.1)*(1/(1-.3)) = $674,603
713,000*.03*$6.40 = $136,896
(note: price will be discussed later)
Recurring payment of $155,526 per year
Depreciation is not a cash flow, and therefore should not be included. The revised fixed costs are as follows:
Utilities and Telephone $46,000
Property Taxes $18,000
Marketing / Co-op Advertising $136,896
Debt Retirement and Interest Payments $155,526
Travel and Related Expenses $40,000
Price can be estimated using Exhibit I. We assume that Conquistador is a premium beer, and can sell at a wholesale price equal to the average price of the top three beers listed ($3.61 for a 6-pack).
This translates into $6.40 / gallon (128 ounces per gallon, 12 ounces per beer).
In addition, kegs will be sold at a rate of 1/3 the gallons of bottles and cans. Price for kegs is 45% of bottle/can price.
**The wholesale cost is calculated by multiplying the cost of goods sold
(which from Exhibit F is 80.3% of sales) by the price per gallon.
Unit contribution is therefore $1.09 ($5.52 - $4.43)
BEV = Fixed Costs / Unit Contribution
= $1,183,025 / $1.09 = 1,087,900 gallons
Our demand forecast was 713,000 gallons. We will most likely not break even.
Larry should probably not invest in this business!!
Exhibits C,E,F, and I for a total cost of
And $4,150 left over!