Case Analysis

Kangaroo Tail Winery

Step 1: The Facts

Summarize the key information from the case and the current situation.

WHO is the decision maker? Anna Amphlett and Andrew Ferris

WHAT is the business decision The owners want to develop a winery, which distributes high quality premium
we are trying to make? What wine. Some of the underlying issues that they need to decide on is about the
are some of the underlying grapes, the location of the winery, and the barrels to be used.
issues?

WHY has this a decision that This decision needs to be made because Tasmanian wines have a high reputation
needs to be made? How do we for high quality wine. We know this because Tasmania is considered to have an
know this? What led to the ideal climate that can be used for production of wine.
current situation?

WHEN does the business This decision needs to be made as soon as possible because it is at the fore front
decision need to be made? Is of the business that they want to undertake.
it urgent?
Why?
Step 2: In-Depth Analysis - Questions related to the case:

Question 1: What are the company’s fixed and variable costs?

Variable Costs per Liter

Labelling $1.30
Labor $3.20
Grapes $7.45
Utilities $0.50

Total variable costs per liter $12.45

Annual Fixed Costs

Production facility rent $1,355,000

Barrel rent $560,000
Amphlett salary $60,000
Crushing equipment rent $745,000
Ferris salary $60,000
Marketing manager salary $80,000
Supervisor salary $65,000
Advertising agency $50,000
Dairy farm lease $1,900,000
Total annual fixed costs $4,785,000
 Question 2: Based on your classification of fixed versus variable costs, what is the company’s break-even point (in
liters of wine)? Show your work.

Sales price per liter = $25.50

Variable cost per liter= $12.45
Contribution per liter = $13.05

4,785,000/13.05 = 373,563.22

Therefore, 373,563 liters of wine is sold to breakeven.

Question 3: What would be the company’s profit before taxes (or net income) if the winery operated at its capacity
production level? Show your work.

Capacity: 550,000
Sales = $1,425,000
Variable cost: $6,847,500
Commission for marketing manager: $27,500
Fixed costs: $4,875,000
Total cost: $11,750,000

Therefore, the profit before taxes is: $2,275,000

Question 4: Let’s say the company is confident they can sell 385,000 liters of wine. How much profit could they make?
Show your work.

Sales price = $25.50

Therefore selling 385,000 liters would be 385,000*25.50
= $9,817,500

Question 5: Let’s say the company has a $10,000 advertising opportunity and the company thinks they can sell 500
more liters of wine as a result of the advertising. Is the advertising investment a good idea? Show your work.

Sales price is 25.50

Additional sales is 500 liters
= 500*25.50
=$12,750

The advertising would be a good idea because it would lead to an increase in revenue and sales for the company. The
opportunity would generate sales of $12,750 at a cost of $10,000.
12,750-10,000 = $2,750