05 Jun Question Hamden Vineyards was founded by tw
Question
Hamden Vineyards was founded by two brothers, Harvey and Mel Coltrane, and has been producing wines for over 30 years. Recently, HV invested $450,000 to plant grapes that will be used to make a new variety of wine. The national market for the new variety of wine is estimated to be 1.2 million cases annually with 12 bottles of wine per case. HV plans to roll the distribution of the new wine out over a four-year time horizon, distributing to the Northeast the first year, adding the Mid-Atlantic states the second year, the South the third year, and the Midwest and West the fourth year. The Northeast represents 25% of the national market, the Mid-Atlantic States represents 15% of the national market, the South represents 30% of the total market, and the Midwest and West combined represent 40% of the national market. To encourage wholesalers to distribute the new wine and promote it to retailers, wholesalers will receive a 10% allowance (based on their purchase price). Standard margins in the industry for this type of product are a 20% markup over cost for retailers and an 8% markup over cost for wholesalers. The variable costs for materials and labor associated with producing the new will be $5.50 per bottle. During the first year, Hamden Vineyards plans to host a series of wine tasting in leading wine shops to introduce consumers to the new wine. The cost of the tastings is budgeted at $125,000. The introduction of the new wine will increase fixed overhead by $130,000 for the year. Harvey and Mel agree on the promotional campaign for the new wine, but Harvey thinks that the retail price for the wine should be $16.20 per bottle. Mel, on the other hand, thinks that the price should be set at a level that will ensure a contribution of $85.00 per case. Based on Harvey’s plan, what is the contribution
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