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Interpreting the elasticity values in the given case


Golden Star Winery produces mid level wines consumed primarily in North America. Given below is the projected income statement for the company for 2011.
Projected Income Statement (2011)
Sales (100,000 cases at $7 per case) $700,000
Cost of goods sold:
Materials $180,000
Labor $225,000
Fixed manufacturing expenses $45,000
Administrative and selling expenses:
Delivery $30,000
Commissions $50,000
Advertising $10,000
Travel $5,000
Fixed administrative and selling expenses $15,000
Total expenses $560,000
Net income before taxes $140,000
Using Excel, prepare a graph showing the breakeven point and any profit or loss at the current price of $7. Explain to the Golden Star management the implications of this analysis.
What is the elasticity coefficient for each price between $6.50 and $7.50? Is the demand elastic or inelastic at these points? How can this information be useful to management in its pricing and output decisions?
On the basis of your calculations and the information above, what recommendations would you make to Golden Star in terms of price and output levels?
Complete the following table in a Microsoft Excel spreadsheet

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