# Profit or loss

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Question description

Golden Star Winery produces midlevel wines consumed primarily in North America. Given below is the projected income statement for the company for 2011.

Projected Income Statement (2011) Sales (100,000 cases at \$7 per case)\$700,000 Cost of goods sold: Materials\$180,000 Labor\$225,000 Fixed manufacturing expenses\$45,000 Administrative and selling expenses: Delivery\$30,000 Commissions\$50,000 Advertising\$10,000 Travel\$5,000 Fixed administrative and selling expenses\$15,000 Total expenses\$560,000 Net income before taxes\$140,000

Create a report answering the following questions:

• Complete the following table in a fully functional Microsoft Excel spreadsheet.

 Price Quantity Total Revenue Total Variable Cost Total Fixed Cost Total Cost Profit \$8.00 65,000 \$7.75 75,000 \$7.50 80,000 \$7.25 90,000 \$7.00 100,000 \$6.75 115,000 \$6.50 120,000

• Using Excel, prepare a graph showing the breakeven point and any profit or loss at the current price of \$7. Explain to the Golden Star management the implications of this analysis.
• What is the elasticity coefficient for each price between \$6.50 and \$7.50? Is the demand elastic or inelastic at these points? How can this information be useful to management in its pricing and output decisions?
• On the basis of your calculations and the information above, what recommendations would you make to Golden Star in terms of price and output levels?

Create your report in a 2- to 3-page Word document.

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