Question

Shannon’s Irish Red averages on premise sales of 1,200 pints per month. What is the anticipated profit (contribution dollars) per month associated with sales of Shannon’s Irish Red assuming that the Irish Stout is not introduced. Express your answer to the nearest dollar. Do not include the dollar sign.

Answer 1

Answer:

2,700

Question Extract:

Assume that Shannon’s is considering the introduction of a new craft beer called Irish Stout that will be derived from its award winning Irish Red. Initially, Irish Stout will only be sold “on premise” at the brewery. Currently, pints of Irish Red consumed on premise sell for $5.00 per pint with unit variable costs of approximately $2.75 per pint. Variable costs are predominantly comprised of the costs of ingredients and utilities that directly affect the brewing process. The new craft beer will be positioned at a slightly higher price, $5.25 per pint and its unit variable costs will be about $3.25 due to the higher cost of some ingredients. The relevant price, cost, and margin data are below. Irish Red Irish Stout Price $ 5.00 $ 5.25 Unit Variable Costs $ 2.75 $ 3.25 Unit Contribution $ 2.25 $ 2.00

Explanation:

Assume that Irish Red’s sales without the introduction of Irish Stout  are expected to be 1,200 units. Since the unit contribution for Irish Red is $2.25 per unit, the overall resulting contribution will be 1,200 x $2.25 = $2,700

The anticipated profit (contribution dollars) per month associated with sales of Shannon’s Irish Red assuming that the Irish Stout is not introduced is 2,700.