It is now 2023 and David has worked with us for several years. He always likes what he hears regarding our analysis. He would like to see a budget for 2023 for his brewery that is very ambitious. He wants to pay himself $50,000 in salary and earn after tax (net income) $100,000.

He thinks he could raise the prices per case for each of the beer lines and/or change his packaging strategy. In other words what current pricing and packaging strategies would you recommend now that it is 2022, going into 2023? Inflation has been around two percent per year from 2013 through 2020. In 2021 and 2022 however, it is somewhere between seven and nine percent. You need to research the current packaging sizes and configurations for craft beer as well as current price points. Hint: Think about other things brewpubs may do.

His direct material costs should remain consistent with current commodity prices. (It appears that the commodity prices for hops and barley vary from year to year based on various factors. This is to be expected since they are dependent on the weather for the crop size each year.)

Other variable costs have probably increased roughly two percent each year from 2013 through 2020. In 2021 and 2022 the costs have increased roughly seven to nine percent. Again, you will need to do some research regarding current costs for the different types of variable costs associated with a craft brewery. Except for direct labor. David was already paying $15 per hour in 2013. So, you need to decide on what your group would consider a reasonable wage per hour in 2023.

Also, in addition to the $50,000 salary for himself the fixed costs probably have increased roughly two percent per year on a per shift basis, again until 2021 and 2022 where the costs have increased roughly seven to nine percent (except for depreciation, it will remain the same regardless of how many shifts). Note: Additional, assumptions will need to be made for increased fixed costs if shifts are added. Here again, you will need to do some research regarding current costs for the different types of fixed costs associated with a craft brewery.

The brewery must continue to produce and sell all four beer lines to satisfy the distributors and end users. However, and there is always a however in life, all types of changes are on the table for your analysis.

David may now be open to buying new equipment if the financial details make sense. Research the cost of buying a new grain hopper and brewhouse equipment. You will also need to research the financing options, since David cannot pay cash, he must finance it somehow.

David would also like your recommendation regarding the Sales Commission percentage. Incorporate your ideas into the budget and make sure to explain them to David.

You need to provide a budgeted contribution margin format income statement for David complete with all supporting schedules (in good form) that support the budgeted income statement. You are free to propose anything you want except dropping a beer line.

All the budget schedules should be supporting documents and the memo should lead David through the budget. It should include explanations/rationale for all your decisions. The tax rate to use is 26.5%.

2. Again, it is now 2023 and David intends to set up a second division/company for the root beer. You need to provide a budgeted contribution margin format income statement for David complete with all supporting schedules (in good form) that support the budgeted income statement. This budget will be for the year 2023, so all root beer information needs to be adjusted for inflation just like the beer data. Research should be performed regarding the current costs and selling prices associated with the craft root beer market.

All the budget schedules should be supporting documents and the memo should lead David through the budget. It should include explanations/rationale for all your decisions. The tax rate to use is 26.5%. The root beer budget should not be combined with the beer budget.