See below

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21st-century-liquors-student-coaching-slides.ppt
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21st Century Liquors:
Student Coaching Slides

Glen Whitman

& Shahid Ansari

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Basic Facts of the Case

  • New state law allows liquor stores to stay open until 4 a.m.
  • Store currently stays open until 10 p.m.
  • Based on her research, Janice Wilton recommended extending hours until 4 a.m.
  • Ted Radcliff asked Wilton to check her analysis and revise her recommendations if necessary.

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Economics Background

  • Concept: Using marginal cost (MC) and marginal revenue (MR) to make profit-maximizing decisions
  • MC = additional cost from doing one more of something
  • MR = additional revenue from doing one more of something
  • Do more when MR > MC. Do less when MR < MC. This will maximize profits.

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Economics Background, cont.

  • MR/MC method is usually used to find profit-maximizing quantity of output.

  • But it can be used for many other things.

  • Here, it’s used to find how many hours to stay open.

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Accounting Background

  • Contribution Margin (CM) is sales revenue minus variable cost.
  • CM is usually per unit of output, but it can also be found for other cost objects.
  • In this case, we use the CM/customer.
  • CM/customer is the price of goods sold minus the cost of goods sold to the average customer.

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Accounting Background, cont.

  • Breakeven customers for a time period = added cost for that time period divided by CM per customer.

  • Safety margin = expected number of added customers minus breakeven number of added customers.

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Statistics Background

  • Regression of a dependent variable Y on an independent variable X gives you an estimated equation of a line: Y = a + bX a = coefficient on intercept b = coefficient on independent variable X

  • Use p-value on the intercept coefficient to see if it is statistically significant. p-value should be less than significance of .05.

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Statistics Background, cont.

  • Difference of means test: determines whether two samples are likely to have come from different populations.
  • In this case, are evening customers significantly different from day customers in their buying behavior?
  • Use two-tail test, because the difference could go either way.
  • Excel will do almost all of this for you!

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