#6) what is the gain in profit to NEW Brew if they can acquire an additional 1%
ID: 325785 • Letter: #
Question
#6) what is the gain in profit to NEW Brew if they can acquire an additional 1% share of the Wisconsin market in 2018? (Assuming they compete in the regular beer segment)Exhibit 2 New Brew's 2017 Income Statement Net Revenue COGS Gross Margin Advertising and Promotion Selling Expenses Administrative and General Expenses Operating Income *has been steady for 5 years ** has increased 2% annually $54,414,478 $37,585,258 $16,829,220 100% 69% 31% ,09% .490 22.6% $50,000* $225,000** $12,323,000. $4,231,220 7.9% Exhibit 3 Additional Information New Brew 2017 barrel sales: 560,974 (declining 2% annually) New Brew Price/barrel: $97 New Brew variable cost/barrel: $67 New Brew contribution margin/barrel $30 Light beer cost/barrel: $70 Craft beer price/barrel: $130 Craft beer variable cost/barrel: $90 Exhibit 4 Wisconsin beer consumption 11 million barrels in 2017. The breakout by style is: %ofMarket . 30% light beer (5% annual decline) . I 1% craft beer (18% annual growth) . . . 34% regular beer (8% annual decline) 10% imports (flat sales) 10% low priced beer (4% decline) 5% regional beer (4% decline)
Explanation / Answer
Current sales of New Brew = 560,974 barrels
Total sales in Wisconsin market = 11 million barrels
Hence, Market share of New Brew = 50.99%
If it is increased by 1%, then it will become 51.99% of 11 million
Hence, Total sales will be 571,974 barrels
Gain in Profit = $ 5,454,208 - $ 4,231,220 = $ 1,222,988
ITEM VALUE Total Revenue 571,974 * 99 = $ 56,625,426 COGS 571,974 * 67 = $ 38,322,258 Advertising $ 50,000 Admin/ General Expenses $ 12,798,960 Operating Income (2018) $ 5,454,208Related Questions
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