Question

Integrative Cases 3-72 (Algo) Financial Modeling (LO 3-1,2,3,4,5) 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 $ 787, 880 969,600 262,600 $2,020,000 475, 710 $1,544,290 1,057,600 $ 486,690 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: < Prey 4 of 4 Next

Answer 1

Solution:
a	Break even point in sales dollars for RBC
	Break even point in sales =	Fixed cost/ PV Ratio
	Fixed Cost:
		$
	Salaries; Manager, chef, brewer	$                           139,000
	Maintenance	$                              25,000
	Advertising	$                              15,000
	Other: Cleaning, menus, misc	$                              37,000
	Insurance & Accounting	$                              36,000
	Property Taxes	$                              18,000
	Depericiation	$                              92,000
	Interest on debts	$                           130,000
	Total Fixed Costs	$                           492,000
	PV Ratio =	Contribution/ Total sales
	Total Sales =	$                        2,020,000
	Contribution =	$                           978,690
	Therefore, PV ratio =	48.45%
	Break even point in sales =	Fixed cost/ PV Ratio
	Break even point in sales =	$                        1,015,480
b	Margin of Safety sales =	Total Sales - BEP sales
	Total Sales =	$                        2,020,000
	BEP Sales =	$                        1,015,480
	Therefore, margin of safety sales =	$                        1,004,520
c	Sales in dollars required to achive an operating profit of $300,000 :
	Total Fixed Cost	$                           492,000
	Operating profit required	$                           300,000
	Therefore, Total contribution req.	$                           792,000
	PV ratio =	48.45%
	Therefore, Total Sales req.	$                        1,634,675
	Sales in dollars required to achive an operating profit of $500,000 :
	Total Fixed Cost	$                           492,000
	Operating profit required	$                           500,000
	Therefore, Total contribution req.	$                           992,000
	PV ratio =	48.45%
	Therefore, Total Sales req.	$                        2,047,472