Next, ignoring the Sedona Stout information, consider Davids question regarding what product line the sales people should emphasize. David wants their sales efforts to maximize profits and utilize the company's current capacity. What would you tell him? Explain your rationale.

Focus on what?

To maximize the profit, which product does the sale people should emphasize?

The most popular one?

Highest revenue one?

Highest C$/$M one?

Choose the highest C$/$M per constraint

Focus on what?

Question $4$

Maximize profits and utlize company's current capactiy

Saguaro Pale Ale

Bisbee Bock

Ocotillo Amber Pilsner

Sedona Stout

CM per case

$ $8\mathrm{.}60$

$ $11\mathrm{.}67$

$ $11\mathrm{.}25$

$ $10\mathrm{.}91$

Constratint $-$ MH

Number of MH per case

$0\mathrm{.}20$

$0\mathrm{.}40$

$0\mathrm{.}25$

$0\mathrm{.}30$

CM per MH

$43\mathrm{.}00$

$29\mathrm{.}18$

$45\mathrm{.}00$

$36\mathrm{.}37$

Focus on what?

We need to consider these factors:

Does AMI have enough refrigeration space to store

Pilsner?

Does AMI have the ability to finance the additional

inventory levels that would be required to hold the

Pilsner in inventory for the aging process?

What is the market demand for each label?

What are the market competitors for each of the

products?

Is brand reputation the same for the products or is

there some differentiation?

Question $5$

Analyzing the sales forecast of root beer, what preliminary course of action do you recommend $($in$-$house or out$-$source production$)$ and why? Support your recommendation with numbers.

Make or Buy

Question $5$

Number of cases

Make

$3,000$

Buy

$3,000$

Make

$6,000$

Buy

$6,000$

Make

$12,000$

Buy

$12,000$

Sales

Total variable costs

Contribution margin

Total fixed costs

Net operating income

$ $49,500$

$22,800$

$ $49,500$

$39,450$

$ $99,000$

$45,600$

$ $99,000$

$78,900$

$ $198,000$

$91,200$

$ $198,000$

$157,800$

$26,70010,050$

$37,6406,000$ $ $(10,940)$ $ $4,050$

$53,40020,100$

$37,6406,000$ $ $15,760$ $ $14,100$

$106,80040,20037,6406,000$ $ $69,160$ $ $34,200$

Contribution margin ratio

$53\mathrm{.}9\%$

$20\mathrm{.}3\%$

Break$-$even

$4,229$

$1,791$

Operating leverage

$3\mathrm{.}39$

$1\mathrm{.}43$

Point of indifference

$7\mathrm{.}6$X $+37,640=13\mathrm{.}15$X $+6,000$

$31,640=5\mathrm{.}55$X

X $=5,701$

Cases

$$600,000\mathrm{.}00$ $$500,000\mathrm{.}00$ $$400,000\mathrm{.}00$ $$300,000\mathrm{.}00$ $$200,000\mathrm{.}00$ $$100,000\mathrm{.}00$

$$0\mathrm{.}00$

Make or Buy

Make

$-5,000\mathrm{.}00$

$10,000\mathrm{.}00$

Revenue

$15,000\mathrm{.}00$

Costs

$20,000\mathrm{.}00$

$25,000\mathrm{.}00$

$30,000\mathrm{.}00$

$$600,000\mathrm{.}00$ $$500,000\mathrm{.}00$ $$400,000\mathrm{.}00$ $$300,000\mathrm{.}00$ $$200,000\mathrm{.}00$ $$100,000\mathrm{.}00$

$$0\mathrm{.}00$

Make or Buy

Buy

$-5,000\mathrm{.}00$

$10,000\mathrm{.}00$

Revenue

$15,000\mathrm{.}00$

$20,000\mathrm{.}00$

$25,000\mathrm{.}00$

$30,000\mathrm{.}00$

Costs

Question $6$

What other issues, concerns, or further analysis do you want to discuss with David? Your issues$/$concerns could pertain to whether AMI should add root beer as a new product line and, if so$,$ the issues or concerns of producing in$-$house versus out$-$sourcing. The issues$/$concerns should include both numeric and non$-$numeric issues. Do not just bullet point all kinds of items; instead, talk about specifics and how they relate to this company$/$situation and why they are important to consider.

Any other issues?

Adding root beer as a new product line:

Market understanding

Does AMI fully understand the needs, desires, and buying

habits of the root beer customer?

Does AMI brand name help sell root beer?

Additional fixed cost

Distribution channel

Would this require a whole new distribution channel?

Additional sales staff?

Equipment reliability

Human resource implications

Management Focus

Other opportunities