Mcphee Distillers Harvard Case Solution & Analysis

Mcphee Distillers Case Study Solution

Suggestions for Improvement

In order to improve the business performance of McPhee Distillers, Kings ley is suggested the following key changes in its business model.

  • Production Equipment Replacement: As the production equipment used is antiquated and does not provide the optimal output, therefore, Kings ley should replace this equipment with a new one using its cash resources or by financing through external sources.
  • R&D Spending: Kings ley should also focus on introducing Whisky with new flavors by spending a portion of its resources on Research and Development.
  • Extending Production Capacity: The production capacity should be increased in order to mitigate the decline in production levels due to increase in the sherry prices during the period of sales growth.
  • Sales Growth Strategies: As stated in the previous section, the net loss in the fiscal year 2016 is due to the decline in unit sales, therefore, Kings ley should consider certain sales growth strategies like increasing promotional activities, expanding towards new markets, etc., in order to gain net profits.

Conclusion

The business model adopted by Kings ley is quite profitable as shown in the income statement. However, the company should consider certain improvements like consideration of sales growth strategies, expansion of the current production capacity, etc., to increase its sales and earn net profits without compromising over the quality.

Appendices

Appendix-1: McPhee Income Statement

McPhee Distillers
Income Statement
For the Period ended on Dec 31st 2014, 2015 and 2016
Year
2014 2015 2016
Revenues (w-1)  $        2,437,500  $        2,345,800
Less: COGS (w-2)  $       (1,687,500)  $       (1,950,000)
Gross Profit  $            750,000  $            395,800
Less: SG&A Expenses
Advertising and Promotion  $            (75,000)  $            (76,080)
Lease  $            (60,000)  $            (60,864)
Office and Administrative  $            (15,000)  $            (15,216)
Salaries and Wages  $            (50,000)  $            (50,720)
Repairs and Maintenance  $            (75,000)  $            (76,080)
Supplies  $            (25,000)  $            (25,360)
Utilities  $            (40,000)  $            (40,576)
Warehousing  $          (100,000)  $          (101,440)
Depreciation (Production Equipment) (w-3)  $            (28,571)  $            (28,571)
Local Creative Agency Fees  $            (50,000)
Total Operating Expenses  $          (518,571)  $          (474,907)
Net Income    $           231,429  $            (79,107)

Appendix-2: McPhee Balance Sheet

McPhee Distillers
Balance Sheet
For the Period ended on Dec 31st 2014, 2015 and 2016
Year
2014 2015 2016
Assets:
Current Assets:
Cash 250000 -677500 46964
Inventory 1187500 412500
Total Current Assets 250000 510000 459464
Non-Current Assets:
Production Equipment 500000 500000 500000
Less: Accumulated Depreciation  $        (28,571)  $        (57,143)
Production Equipment net 500000 471429 442857
Total Non-Current Assets 500000 471429 442857
Total Assets 750000 981429 902321
Liabilities and Equities:
Liabilities: Nil Nil Nil
Equities:
Common Stock (250 Shares of 1000 each) 250000 250000 250000
Preferred Stock (500 Shares of $1000 each) 500000 500000 500000
Add(Less): Net Income(Net Loss) 231429  $        (79,107)
Net Worth 750000 981429 670893
Total Liabilities and Equities 750000 981429 670893

Appendix-3: McPhee Cash Flow Statement

McPhee Distillers
Cash Flow Statement
For the Period ended on Dec 31st 2014, 2015 and 2016
Year
2014 2015 2016
Cash Beginning 250000 -677500
Cash Flow From Operating Activities:
Net Income 231429 -79107
Add: Depreciation Expense 28571 28571
Add(Less): Change in Inventories -1187500 775000
Net Cash Flow From Operating Activities -927500 724464
Cash Flow From Investing Activities:
Initial Investment 750000
Purchase of Production Equipment -500000
Net Cash Flow From Investing Activities 250000
Cash Flow From Financing Activities
Nil Nil Nil
Cash Balance Ending 250000 -677500 46964

 

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