Share
Explore BrainMass

Analysis of Damages & Lost Sales for Sonoma Beverage Co.

See attached file.

Case Facts:
1. Sonoma Beverage Co. is a beverage company located in Napa Valley. Sonoma Beverage Co. began its operations in 2003.
2. Sonoma Beverage Co.'s only product is a non-alcoholic fizzy "Napa Chardonnay" drink.
3. Sonoma Beverage Co. sells its product to specialty grocery stores.
4. Sonoma Beverage Co. rents its production facility.
5. In 2003, Sonoma Beverage Co. sold directly to selected grocery stores. Since 2004, Sonoma Beverage Co. has sold its products through a distributor.
6. Sonoma Beverage Co. purchases Napa Valley Chardonnay grapes every year from Glendale Vineyards.
7. Sonoma Beverage Co. had a contract to purchase 1,160 tons of Chardonnay grapes from Glendale Vineyards' 2008 harvest (grapes are harvested once per year in the Fall) at $1,900 per ton. Glendale only delivered 535 tons of grapes.
8. 2008 was a high demand and low harvest year for Chardonnay and Sonoma Beverage Co. suspects that Glendale may have sold the grapes due Sonoma Beverage Co. to a higher bidder.
9. Sonoma Beverage Co. was unable to acquire replacement grapes.
10. Sonoma Beverage Co. has sued Glendale for breach of contract.
11. Please see Excel file for other Sonoma Beverage Co. financial data.

Assignment:

Answer the following questions and provide exhibits in Excel

1. Which fiscal year's sales were impacted? What portion of the current year's production is sold during the current year versus the following year, given that Sonoma Beverage Co. uses the FIFO approach for its inventory?

2. Historically, what was the yield per ton (i.e. how many bottles per ton of grapes)?

3. How many bottles could have been produced with the undelivered grapes?

4. What would have been Sonoma Beverage Co.' selling price per bottle (for the bottles produced from the undelivered grapes)? Calculate the total lost sales.

5. What would have been the cost of sales per bottle? What are the components of the cost of sales? Are those components variable or fixed costs? And why (discuss the evidence)? What were the historical cost of sales percentages? Calculate the total cost of sales related to the lost sales.

6. Identify operating expenses that are variable. Which ones are they? Why? Estimate the total operating expenses that were saved.

Attachments

Solution Preview

Please see the attached files for the complete tutorial.
Question 1
The sales of year 2008 were impacted. Given that Sonoma Beverage Co. uses the first-in, first-out (FIFO) approach in accounting, this means that for 2008 the company has $5,054,233 total goods available for sale for the year, and given that the cost of goods sold for the year is $3,588,276, then we can say that $900,900 came from the production for the fiscal year 2008 or approximately 25% of total sales for the year.
Question 2
2008 2007 2006 2005 2004 2003
# of bottles produced 385,718 867,701 419,309 290,017 287,453 273,831
Divided by:
Yield per Ton 721 723 722 722 754 726
Number of tons of wine produced 535.27 1,200.34 580.51 401.49 381.34 377.03
Tons of grapes purchased 535 1,200 581 401 381 377
Yield per ton, % 100% 100% 100% 100% 100% 100%
Yield per ton, bottles 721 723 722 722 754 726

Question 3
Given the yield per ton, and given that the Napa Valley Chardonnay grapes didn't deliver 625 tons of grapes, then Sonoma Beverage Co. would have been able to produce 450,178 bottles.
Question 4
Selling price per bottle for the undelivered grapes would have been the same at $9.50. Given this, then Sonoma Beverage Co. would have been able to sell $4,276,694 more.
Question 5
2008 ...

Solution Summary

The solution provides the analysis of damages and lost sales for Sonoma Beverage Co.

$2.19