Determine the quantity sold
a. Since Mr. Gomez is putting all of his savings and sources of investment into this company, assume that he should only invest if he can turn a profit within the first year.
b. For the purposes of this case “Distributor” and “Wholesaler” mean the same thing.
c. There are two products: beer in kegs and beer in cans/bottles. This means you will need to determine the quantity sold for each, the price for each, and the variable cost for each. Total revenue is just the sum of the separate revenues (ditto for total variable costs). The case provides enough information to compute all these values, but it’s not all in one place.
i. You will need to convert prices for bottle/cans to prices for kegged beer. To do so, convert the price per 6-pack to a price per gallon. A 6-pack is 6 x 12 oz. = 72 oz. There are 128 oz. per gallon. 128 oz. per gallon / 72 oz. per 6-pack = 1.78 6-packs per gallon. Use this number to convert prices (i.e., 1.78 6-packs per gallon * [some price in dollars per 6-pack] = Price per gallon for bottled/canned beer).
d. The variable cost is labeled in the studies as “Cost of Sales” and is expressed as a percentage of total sales, or equivalently a percentage of the price, if you want to know the unit or per gallon cost.
e. Fixed costs are just the sum of all the fixed costs given, as well as the initial investments. But make sure you factor in that he has investment money to pay for some of these total fixed costs.