Reference no: EM132048600

The owner of Duck brewery says:

"We just went through a process of looking through our costs in excruciating detail. We were actually selling one brand, Nut Ale, below cost. From an ingredient basis, it's the cheapest beer we make, so I was charging less for it. But ingredient cost is such a small portion of the cost of beer. Labor and overhead are much bigger. I didn't have a precise number for any of the costs at all; I just made a wild guess."

I interpret the comment to mean that the owner now believes the original cost estimate (the "wild guess" based on the cost of ingredients) was too low, and that some recent analysis has provided "better" information about the cost of Nut Ale (and, presumably, all such products made at the Duck Brewery).

Note that the owner already has new and improved cost information!

Respond to the following:

The owner of Duck Brewery now knows that the price for Nut Ale is "below cost" and that the product is reporting a net loss. Identify and critique possible responses (e.g., actions taken because of the new information) to the new information (see bold italic text above) that would

(i) increase the value of the Duck Brewery (presumably you would support such action(s));

(ii) decrease the value of the Duck Brewery (presumably you would educate the owner regarding why not to take such action(s)).