Question

g The Dynatech Brewing Company is a small craft brewer that produces five standard varieties of beer. The beers sell for $6 per six-pack, and the company currently sells 7,000 six-packs per month. The company is considering producing a seasonal beer that will be sold in October, November, and December. The company estimates that at $6 per six-pack, the company will sell 1,400 six-packs. At $7 per six-pack, sales will be 700 six-packs. The company also estimates that sales of the seasonal beer will eat into sales of its standard items. Specifically, for every 700 six-packs of the seasonal beer that are sold, 210 six-packs of the standard varieties will not be sold. The variable production costs of all beers is $1.70 per six-pack. Calculate the incremental profit associated with the two selling prices under consideration for the seasonal beer (i.e., $6 and $7 per six-pack). (Enter loss using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).) $6 per six-pack $7 per six-pack Incremental profit/(loss) $enter a dollar amount $enter a dollar amount eTextbook and Media Should Dynatech Brewing produce the beer

Answer 1

The Dynatech Brewing company

a. Incremental Profit with the Seasonal Production and Sales:

1,400 units 700 units

Sales revenue $8,400 $4,900

Variable costs 2,380 1,190

Contribution $6,020 $3,710

Lost Contribution 1,806 903

Incremental profit $4,214 $2,807

b. Dynatech Brewing should produce 1,400 six-pack seasonal beer. It will increase its profit (contribution) by $4,214. It will only suffer a lost contribution of $1,806.

Step-by-step explanation:

a) Data and Calculations:

Selling price per six-pack = $6

Variable production costs per six-pack = $1.70

Contribution per six-pack = $4.30

Units sold per month = $7,000

Seasonal Production and Sales:

1,400 units 700 units

Sales revenue $8,400 ($6 * 1,400) $4,900 ($7 * 700)

Variable costs 2,380 ($1.70 * 1,400) 1,190 ($1.70 * 700)

Contribution $6,020 ($4.30 * 1,400) $3,710 ($4.30 * 700)

Lost Contribution 1,806 ($4.30 * 420) 903 ($4.30 * 210)

Incremental profit $4,214 $2,807