Bayern Brauerei

7 Pages 1869 Words

Breakeven/Cash Flow Analysis:

Through the use of excel graphs, we learned that changing the fixed cost, variable cost, and price variables had varied effects on the profit margin. A change in fixed costs, such as the purchase of a plant or equipment, would have an effect on the price, but would likely use long term financing to finance, so there would be less of an abrupt effect. The fixed costs affect revenue less as the quantity produced increases. The calculation showing that a 1% increase (show 1% decrease as well) in sales would bring about a 5.41% increase in EBIT does not take into consideration the proposed expansion. The proposed expansion would lead to a higher total costs, and therefore a reduced profit margin.
Variable costs, on the other hand, have an effect on each hectoliter produced and are independent of whether or not sales increase. An example of this would be an increase in the cost of manufacturing glass that amounts to an additional two cents per 20 glass bottles. This increased expense would cause each additional unit to increase by an additional two cents and would be equivalent to an aggregate increase of .02(the number of beer bottles produced) dollars in expenses relative to the previous position.
Although Uncle August stated that there is no direct relationship between cost and sales, there is no evidence to support this claim. It is reasonable to assume some fluctuation despite the fact that the beer is sold as a premium beverage. Understandably, the correlation between cost and sales will be less with our product than with a discount beverage. Max Leiter provided no evidence to support his claim that price was not an issue for the consumers. As a premier beer, we assume that there is some room for fluctuation in price. If current costs increase and are not passed on to the consumer, it will have a negative impact on profit margin in that the difference between revenue and total costs will de...