Examine the profitability and viability in the production of Braeside distillery’s whisky Essay

Name:Course Code:Date of Submission:Executive Summary:The major purpose of this study is to rede Braeside distillery on the profitableness and viability in the production of its limited edition whiskey, called Pure Gold. The best method of placing the viability of this merchandise, is through the usage of a interruption even analysis, by utilizing the information that are provided, given all factors remain changeless. Based on the figures provided, the company would interrupt even after the sale of 3980 bottles of Pure Gold. However, the company should take into consideration other external factors that have the capableness of act uponing the profitableness of the company.

This includes external factors like, an addition in the monetary values of oil, which has the capableness of increasing its fixed costs. On an overall position, the company plans at bring forthing and selling 30,000 bottles of Pure Gold, and if all factors remain changeless, this is a really profitable enterprise.Section 1: Methods of Analysis:Premises and Methods:For intents of finding the viability and profitableness of this undertaking, there will be a demand of utilizing the constructs of the Break Even analysis. This will assist the company to place the point where the sale and production of Pure Gold will non ensue to a loss, or even a net income ( Epstein, 2011 ) . This point of intersection is called the Break Even point. Before the designation of this point, the following are the premises that the company should set about,

  • The company intends to bring forth 30,000 units of Pure Gold.
  • There is no distribution trades with retail merchants, hence, the monetary value of the merchandises remain the same.
  • All costs incurred by the company are consistent.

  • The current exchange rate of 1 lb peers to 1.28 Euro remains the same.

Calculations and Meanings:The Fixed Overhead costs are 200,000 lbs.The gross revenues Price per Unit is 75 lbsThe entire variable cost per unit is 24.

75 lbsBreak Even Quantity = Fixed Costs/ ( Gross saless Price-Variable Costss )= 200,000/ 50.25= 3980Furthermore, for intents of placing the profitableness of this whiskey, there is a demand of finding the border of safety. The followers is a expression for ciphering the Margin of Safety ( MoS ) ,MoS = ( Expected Number of Sales- BEQ ) /Expected Number of Gross saless= 30,000-3980/30,000= 0.8673ercentage Representation would be, ( 0.8673* 100 ) = 86.73 %MoS = 86.

73 %This border of safety is really high, and this means that the company would do losingss if its gross revenues autumn by a 86.73 % .Section 2: Model and Penetrations:Graphic Analysis:

Q ( Quantity ) TC ( Entire Costss ) TR ( Total Revenue ) Net incomes
0 200,000 0 -200,000
5000 323,500 375,000 51,500
10,000 447,500 750,000 302,500
15,000 571,250 1,125,000 553750
20,000 695,000 1,500,000 805,000
25,000 818750 1,875,000 1056250
30,000 942,500 2,250,000 1307500

By carefully looking at this graph, where entire gross and entire cost intercept each other, is the Break Even point. This means that, it is at this point of production, where the company will non do any losingss nor any net incomes ( Epstein, 2011 ) .

From the computations and the graphical representation, it is possible to denote that the break-even point is 3980, which is a really low figure. This means that the production and sale of Pure Gold at the conditions identified is a really profitable venture. Furthermore, as antecedently discussed, the border of safety of undertaking is really high, which stands at 86.

73 % . This means that if the gross revenues of the company autumn to 86 % , the company will still do some net incomes.Section 3: Examples of Changes in the ConditionssOne of the major countries where the company is vulnerable to is on the currency fluctuations and value ( Epstein, 2011 ) . Presently, the value of the currency stands at 1 lb is equal to 1.28 Euro. However, if the strength of the Euro additions, against the lb, this means that the profitableness of the company would diminish.

An addition in the strength of the Euro would intend that it trades at a lower monetary value of 1.28 against the lb. Take for illustration ; the current exchange rate is 1 lb against 1.28. However, if this monetary value falls to 1 lb against 1.27 Euro, the gross that the company would acquire per unit would be in Euro would be, ( 75*1.27 ) = 95.

25The current monetary value in Euro is 75* 1.28 = 96There will be a bead in the profitableness of the company by 96-95.25 = 0.75Based on this analysis, the company should be considerate on the fluctuations in the value of the currency that it uses to merchandise with, in the Euro Zone market.Section 4: Problems with the AnalysisBreak Even analysis has a figure of failings, and the first 1 is that it does non acknowledge the price reductions that a company receives because of majority buying, or purchasing merchandises through wholesale. Furthermore, this method assumes that each unit of a merchandise would gain the same gross, and incur the same variable costs. It farther asserts that, the lone factor which has the capableness of impacting the variable costs are, the volumes or measure produced by the company ( Epstein, 2011 ) . Break Even analysis wrongly assumes that the efficiency of fabrication will stay the same, throughout the production rhythm.

Furthermore, Pure Gold is an elastic merchandise, and its gross revenues are influenced by the pricing policy of the company and its rivals. The company may therefore lose, if it invariably increases the monetary value of the merchandise ( Epstein, 2011 ) . It is hence indispensable for the company to transport out a market research before coming up with a monetary value that would do it accomplish a competitory advantage over its challengers.Section 5: DecisionIt is possible to reason that based on the Break Even Analysis, this undertaking is feasible. The company would accomplish a Break Even point after selling 3980 bottles of Pure Gold, which is less than 20 % of its production. However, the company should see the fact that the Break Even analysis does non factor in alterations in the external and internal environment of the company y, such as the degree of competition, monetary values, and currency fluctuations.Section 6: RecommendationsThere are three major ways that the company can set about for intents of maximising its net incomes ( Epstein, 2011 ) .

One of import method is strategic confederation. This is a method whereby the company should look for spouses, in Europe, so that it could utilize their distribution channels to administer the merchandises. This will cut down the costs of administering the merchandises of the company.

Aggressive selling is another of import method that the company should utilize. The company should utilize the societal media, and other traditional signifiers of communicating such as newspapers, wirelesss and telecasting, to publicize its merchandises. Finally, there is a demand of outsourcing some of its production activities, for intents of cut downing administrative and fixed costs.Bibliography:Epstein, M. ( 2011 ) .

Progresss in direction accounting. Bingley, UK: Emerald.Appendix 1:Fixed Cost: 200,000 lbsVariable Costss per Bottle:Agitation 2.25 lbsTaxs 7.50 lbsTransportation system 4.

0 lbsBottling 2.0 lbsMarketing 4.75 lbsMaturing 1.75 lbsGross saless Price = 75 lbsAppendix 2:Break Even Point:This is a point where the company does non do either a net income or a loss.

The break-even point for the company is,Break Even Quantity = Fixed Costs/ ( Gross saless Price-Variable Costss )= 200,000/ 50.25= 3980Appendix 3Technetium:Bases for Entire CostssTR:Bases for Entire GrossEntire Cost =Quantity * Selling PriceNet incomes:Entire Revenue- Sum Costss