Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customersfood fromthe 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$835,800

Food sales975,100

Other sales179,100

Total sales$1,990,000

Less cost of sales458,098

Gross margin$1,531,902

Less marketing and administrative expenses1,072,100O

perating profit$459,802

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 $200,000? 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 (42% of total sales)$835,800

Food sales (49% of total sales)975,100

Other sales (9% of total sales)179,100

Total sales $1,990,000

Variable Costs

Beer (12% of beer sales)$100,296

Food (31% of food sales)302,281

Other (31% of other sales)55,521

Wages of employees (20% of sales)398,000

Supplies (2% of sales)39,800

Utilities (5% of sales)99,500

Other: credit card, misc. (2% of sales)39,800

Total variable costs $1,035,198

Contribution margin $954,802

Fixed Costs

Salaries: manager, chef, brewer$137,000

Maintenance29,000

Advertising20,000

Other: cleaning, menus, misc39,000

Insurance and accounting39,000

Property taxes17,000

Depreciation90,000

Debt service (interest on debt)124,000

Total fixed costs $495,000

Operating profit $459,802

Perform a sensitivity analysis by answering the following questions:

a.What is the break-even point in sales dollars for RBC?(Round intermediate calculations to 3 decimal places and your final answer to the nearest whole dollar.)

• Break-even-point_____________?

b.What is the margin of safety for RBC?(Round intermediate calculations to 3 decimal places and your final answer to the nearest whole dollar.)

• margin of safety___________?

c.What sales dollars would be required to achieve an operating profit of $200,000? $530,000?(Round intermediate calculations to 3 decimal places and your final answers to the nearest whole dollar.)

• operating profit of 200,000___________?
• operating profit of 530,000_____________?