Question

1. Hockley Brewing has produced a new craft lager beer that will be branded Hockley Classic Lager. The market for craft beer is about $20 million retail per year and the average retail price across all craft beer producers is $2.50. The following information applies to Hockley’s new craft lager beer.

Factory production costs                                                $1.05 / can

Beer ingredients                                                            $0.35 / can

Packaging                                                                     $0.20 / can

Advertising and promotion                                            $60,000

Channel listing fees                                                       $30,000

Hockley’s wholesale price to retailers                             $2.40 / can

(Hockley’s) manufacturer’s suggested retail price           $2.55 / can

a. What is Hockley’s unit contribution (measured in $ per can) and contribution margin (measured in percentage)?

b. What is the break-even point in cans? in dollars?

c. What is the necessary sales volume in cans to achieve a $150,000 (target) profit?

d. What will Hockley’s net profit be if 100,000 cans of the new lager are sold?

e. What will Hockley’s market share of craft beer be if they sell 100,000 cans? [Hint: to calculate the total number of cans sold in the market, use the total retail value of the market and industry average retail price given above.]

f. Their largest competitor is Mill Street Brewery whose Original Organic Lager has 2.5% market share of the craft beer market. Given Hockley’s market share calculated in part (e), what will Hockley’s relative market share (RMS) be for their Classic Lager?

g. The craft beer market is growing at 10% annually, higher than any other type of beer. With the RMS for Hockley Classic Lager calculated in part (f), at the end of their first year, where in Hockley’s portfolio will Classic Lager be positioned and what recommendation would follow?

h. Calculate the price elasticity of demand if they raise the MSRP from $2.55 to $2.75 and demand falls from 100,000 cans to 95,000 cans. Is demand for this product price elastic or inelastic?

Answer 1

1. (a)

	Variable price per can	Fixed cost
Factory production cost	$1.05
Beer ingredients	0.35
Packing	0.20
Advertisement and promotion		60000
Channel listing fee		30000
Total	$1.6/can	90000

Contribution margin is the difference of Sale price Less Variable cost

Here Selling price at which Hockley sells its product will be taken ie $2.40/can

Selling price per can	$2.40
Variable price per can	$1.60
Contribution margin per Can	$0.80

Contribution margin in percentage = (Contribution margin ÷ Revenue )× 100

Contribution margin (%)

(0.80/2.40)×100 =33.33%

b) Breakeven point ( can ) is 112500

Breakeven point ($) = Breakeven unit × Selling price per can = 112500×2.40 =$270000

​​​​Break even point is the point where their is no profit no loss and the total contribution equal total Fixed Cost .

Formula for Breakeven point ( unit , Can ) = Total Fixed Cost ÷. contribution margin per can

= 90000/0.80

=112500 can

c) Sales volume to desired profit is 300000 can

formula for sales to earn desired profit =( Fixed Cost + Profit ) ÷ Contribution margin per can

=(90000+150000)÷0.80

=$240000/$0.80

=300000 can

d) Their will be loss of $10000 when 100000 can will be sold

Net profit is 100000 can sold

Profit = Total contribution - Fixed cost

=(100000×0.80)-90000

=(10000)

Sorry i can answer only 4 subquestion as per guideline.