Lion’s Lager Case Study Part D: Differential Analysis and Investment Evaluation

Lion’s Lager Case Study
Part D: Differential Analysis and Investment Evaluation
Case Facts
Expanding Event Services
Following the successful launch of Lion’s Lager’s limited-edition seasonal beer, “Autumn
Amber,” the company is exploring the expansion of its event services to enhance profitability.
Currently, Lion’s Lager provides public brewery tours and tastings, but management believes
there is significant potential in expanding these services to include private events, such as
corporate gatherings and birthday parties. All private events would also include catering.
Management is keen to assess two options for this expansion. Costs required for each option are
provided below:
Table I: Expanding Event Services Options
Description Public Tours and Tasting Private Event Hosting
Staff members 2 6
Hours per staff member 2 hours 4 hours
Event staff wage rate $15 per hour $20 per hour
Catering cost $0 $30 per guest
Monthly fixed expenses $800 $2,500
Based on customer surveys, management anticipates hosting 4 private events each month, with
an average of 30 guests per event. All events are a flat fee of $3,000, limited to 60 guests. If the
company invests in additional public tours instead, it anticipates an additional 25 tours each
month, with an average of 14 guests on each tour. Tours are offered at $15 per guest.
From a marketing standpoint, Lion’s Lager has invested heavily in marketing to the local college
students. The company’s goal is to build their brand and reputation among the college
demographic, and to become the primary local attraction to college students.
Investment Evaluation
Lion’s Lager is also considering two key pieces of equipment necessary for improving the
brewery process: a Bottling Line and a Filtration System. The estimated investment and returns
of each piece of equipment are summarized in Table II:
Table II: Equipment Investment
Description Bottling Line Filtration System
Initial investment $150,000 $100,000
Expected annual revenue increase $50,000 $35,000
Annual operating costs $20,000 $10,000
The bottling line will enhance the overall presentation and packaging quality of the product,
improving brand recognition and perception among customers. It also will improve production
rates, which is crucial for efficiently launching seasonal flavors. On the other hand, the filtration
system will enhance the flavor profile and help ensure compliance with industry standards and
regulations.
Instructions
Your cost management team is tasked with conducting the following analysis:
• Differential analysis comparing the expanded public tours and tastings and private events
• Investment evaluation of the bottling line and filtration system equipment
For both analyses, please make a recommendation to management based on both the quantitative
and qualitative analysis of each decision.
Please ensure all calculations are performed in Excel, and all findings, analysis, and
recommendations are professionally summarized in a corresponding report. Please adhere to
generally accepted professional business writing parameters.
You are permitted to utilize AI resources for the completion of this case study, but that process
(prompts and the responses) must be well documented and submitted with your report
deliverables. Your group is not permitted to collaborate or share findings among other groups.
Doing so is academically dishonest, and will result in a 0% on the assignment for all students
involved. You are permitted and encouraged to seek assistance from your instructor.