Question

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

Should Dynatech Brewing produce the beer?

The company select an option                                                                      should or should not produce the seasonal beer.

What price should the company charge?

Price

$enter the price in dollars per six-pack

per six-pack

Answer 1

selling price for seasonal bear is $6

Variable cost = $1.7

profit = selling price - variable costs = 6-1.7 = $4.3 per pack

1400 units will be sold

thus,

total profit on seasonal bear = 4.3 x 1400 = $6020

due to this decrease in Units sold of standard bear = 210 x 2 = 420 ( since it is mentioned that for every 700 seasonal bears, 210 less units of standard bear will be sold_

profit per six pack of standard beer = $6 -1.7 = $4.3

profit lost due to sesonal bear = 4.3 x 420 = 1806

thus the company will make a net profit of = 6020 - 1806 = $4214

selling price for seasonal bear is $7

Variable cost = $1.7

profit = selling price - variable costs = 7-1.7 = $5.3 per pack

700 units will be sold

thus,

total profit = 5.3 x 700 = $3571

due to this decrease in Units sold of standard bear = 210 x 1 = 210 ( since it is mentioned that for every 700 seasonal bears, 210 less units of standard bear will be sold_

profit per six pack of standard beer = $6 -1.7 = $4.3

profit lost due to sesonal bear = 4.3 x 210 = 903

thus the company will make a net profit of = 3571 - 903 = $2668

Final Answers

incremental profit: ( extra profit that the company makes due to the production of seasonal beer

at $6 ; 4214

at $7: 2688

Since the company is making a net profit in both the cases, it should produce the seasonal beer

since the company is making greater net profit in $6 selling price, it should sell it at that price