21st Century Liquors: Student Coaching Slides

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21st Century LiquorsStudent 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 gt MC. Do less when MR lt 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, its 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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