Mountain Man Brewing Company: Breakeven Analysis Template

Step 1: Calculation of Contribution Per Barrel for Lager and Light Product
Revenue per barrel (Hint: from Exhibit 1 and other parts of the case) = MMBC 2005 revenue
(exhibit 1) / Barrels sold (pg 2) = $5055000/520000 = $97
Revenue per barrel
Variable Cost per barrel
Contribution per barrel

Mountain Man Lager

Mountain Man Light

$66.93
$30.07

$71.62(pg 6)
$25.38(rev VC)

Step 2: Calculation of Incremental Launch Expenditure

Assume payback or breakeven period in years(Hint: what does the case suggest?) 2 yrs
Average Annual Incremental Expenditure over payback period

=.$750000/2 + $900000 =

$1275000
Step 3: Calculate lost contribution due to Cannibalization (Number of years used in calculation
below depends on assumed payback or breakeven period)
Year 1

Year 2

A. Projected Sales of Mountain Man Lager (barrels)(-4%) 499,200 bls 479200 bls
B. Barrels lost due to cannibalization

24960 bls

C. Lost Contribution = B*contribution per barrel ($30.07) $750500

23960bls
$720500

Average lost contribution per year due to cannibalization: ($750500+$720500)/2 = $735500

Step 4: Breakeven Volume Calculations
Breakeven Annual Volume in barrels to cover incremental expenditure = $1275000/$25.38 =
50250 bls
Additional Volume in barrels needed to cover lost contribution due
to cannibalization

= $735500/$25.38 = 29000 bls

Total annual breakeven sales volume in barrels

= 79250 bls

Step 5: Breakeven Market Share Calculations

% Breakeven Share of 2006 Light Beer Market for EC Region = 79250/(18744303*1.04) =
0.41%
% Share of 2006 Light Beer Market Served by Other Brands (Ex. 6A) = 0.41%/14%=2.9%
% Breakeven Share of Beer Market for EC Region (Ex. 5) = 79250/(37191077) = 0.21%
Note: the last calculation uses 2005 market size for beer in EC region
Step 6: Breakeven Market Share Calculations: Sensitivity Analysis to different cannibalization
rates
If cannibalization causes 20% decrease in sales of mountain man lager, breakeven volume to
cover lost contribution is four times higher.
And they have 7.1% of premium segment ( exhibit 5)