Golden Star Winery produces midlevel wines consumed primarily

Golden Star Winery produces midlevel wines consumed primarily in North America. Given below is the projected income statement for the company for 2011.

Projected Income Statement (2011) Sales (100,000 cases at $7 per case)

 $700,000

Cost of goods sold:

Materials

$180,000 

Labor

$225,000 

Fixed manufacturing expenses

$45,000    

Administrative and selling expenses:

Delivery

$30,000 

Commissions

$50,000 

Advertising

$10,000 

Travel

$5,000 

Fixed administrative and selling expenses

$15,000 

Total expenses

 $560,000

Net income before taxes

 $140,000

Create a report answering the following questions:

• Complete the following table in a fully functional Microsoft Excel spreadsheet. PriceQuantityTotal RevenueTotal Variable CostTotal Fixed CostTotal CostProfit$8.0065,000     $7.7575,000     $7.5080,000     $7.2590,000     $7.00100,000     $6.75115,000     $6.50120,000     

• Using Excel, prepare a graph showing the breakeven point and any profit or loss at the current price of $7. Explain to the Golden Star management the implications of this analysis.
• What is the elasticity coefficient for each price between $6.50 and $7.50? Is the demand elastic or inelastic at these points? How can this information be useful to management in its pricing and output decisions?
• On the basis of your calculations and the information above, what recommendations would you make to Golden Star in terms of price and output levels?