Question

In: Accounting

Summary: Critical background information about the company, the environment it is operating in, and other factors...

Summary:

Critical background information about the company, the environment it is operating in, and other factors of significance (Industry and Company analysis)

Company information:

Bibitor LLC is an alcohol company that sells wines and spirits that operates in Lincoln state.

It has 79 stores, with the top 5 revenue generating stores being stores : 76, 73, 34, 38, 66.

Total sales equal around 442 million dollars, and COGS is around 303 million dollars.

Average sales per store is around $5,583,184, and the median for sales is $3,961,997. Additionally, the average COGS per store is $3,741,375, with the median being $2,680,286.

The most popular size for wine is 750mL, generating about 128 million dollars in sales, with around 10.1 million of bottles sold.

The most popular size for spirits is 1.75L, generating about 127.4 million in sales from about 5.8 million bottles.

Environment information:

Assuming the legal drinking age is 18, there are 1,045,343 potential customers in Lincoln

Total alcoholic beverage sales in the US was about 223 billion dollars in 2016, and trends indicate that the industry will keep growing

Younger generations favor spirits and wine more, with 51.2% of millenials/ Gen X buying beers, and 33.6% buying spirits. (Beverage Information Group, John Beaudette)

Should Bibitor open the 80th store? To support your answer, include a side by side variable income statement with and without the 80th store. Include any assumptions and/or limitations of your total cost model.

Expert Solution

Assuming the median sales is achieved by the 80th store, the variable statement

	With	Without
Total sales	445,961,997	442,000,000
COGS	305,680,286	303,000,000
	751,642,283	745,000,000

Contribution by unit 80	6,642,283

There is a positive contribution from the 80th store, hence Bibitor may consider opening, however, to analyse more it would be better to consider increasing the capacity of the existing 79 stores, since opening a new store would also involve, additional fixed cost.

The major factors for decision making would be:

Can the capacity of existing stores be utilised to service the increasing demand?

is the existing stores, covering the potential customer location?

how far is the new location from the existing stores.?

opening of new stores, will it affect the sale of exisitng store?

Fixed cost Vs additional customer service to be analysed

ekkarill92 answered 1 year ago

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