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.
Total Variable Cost
Total Fixed Cost
- 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.