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Case on Management Decision Making


ISSUES IN ACCOUNTING EDUCATION American Accounting Association Vol. 31, No. 4 DOI: 10.2308/iace-51189 November 2016 pp. 409–415

Arizona Microbrewery, Inc.: An Instructional Case on Management Decision Making

Janet A. Samuels Arizona State University

Kimberly M. Sawers Seattle Pacific University

ABSTRACT: This case provides students with an opportunity to utilize cost volume profit (CVP) analysis tools in a contextually rich environment of a microbrewery. The case explores basic CVP concepts as well as decision making

for constrained resources, make versus buy, and new product development. Further, the case requires quantitative

analysis, understanding, and exploration of contextual issues as well as assessment of qualitative factors. While

directed at graduate students (M.B.A. and E.M.B.A.) in a managerial accounting course, this case may also be

suitable for undergraduate students with some minor modifications.

Keywords: cost volume profit (CVP); breakeven, target profit; ‘‘what if’’ analysis; constrained resources; make versus buy; add a product line.


I n 2009, David Tucker quit his job at a large beer company to start his own brewery, Arizona Microbrewery, Inc. (AMI).

His family supported his decision and invested in the business along with David. AMI began operations on January 10,

2010 and now produces four labels of specialty beers (Saguaro Pale Ale, Bisbee Bock, Ocotillo Amber Pilsner, and

Sedona Stout). An explanation of the beer-making process is shown in Appendix A.

In much of the United States (including Arizona), beer is sold in a ‘‘three-tier’’ system. Under this system, beer is manufactured by producers, sold to distributors, who then sell to retailers (such as liquor stores, drug stores, and grocery

stores). David employs two salespeople who receive a fixed monthly salary plus an 8 percent commission. All beer is sold to

beer distributors ( primarily in the Southwestern United States) in cases of 24 bottles. Product sales and cost information for

2013 are shown in Exhibit 1 with additional information in Exhibit 2. David rents a facility that is used to make the beer, a

refrigeration area to store the beer, and a small office area. AMI brewery has five machines with 9,300 total machine hours

available per year to produce beer (assuming AMI remains on one shift with some normal maintenance, breaks, etc.). While

there is an empty space in the facility that could be used to expand the beer operations, the company would need to purchase an

additional grain hopper and brew house for about $100,000 (the current water system and process control system could be

expanded to handle the new machine). As discussed in Appendix A, beers are aged in a refrigeration area prior to sale. The

current refrigeration unit allows for different temperatures in different areas of the unit and the unit is usually running about 80

percent full. Keeping the refrigeration unit somewhat full helps reduce refrigeration costs. 1

Additionally, since the company is

so new, sales have been growing but erratic (from 2010 to 2011, sales growth was over 45 percent; however, from 2012 to

2013, sales growth was only 12 percent). Thus, keeping more beer on hand allows the company to meet the erratic demand

without loss of sales.

We thank the editor, associate editor, and two reviewers for their helpful suggestions for improving the manuscript.

Editor’s note: Accepted by Lori Holder-Webb.

Submitted: February 2015 Accepted: June 2015

Published Online: June 2015

1 Opening and closing the refrigeration unit when it is very empty results in a greater temperature drop as more warm air gets into the refrigeration unit compared to when the refrigeration unit is very full; thus, keeping the refrigeration unit somewhat full helps reduce refrigeration costs.




David has not taken a salary since the business started. While the business has been generating a small profit, David has

been reinvesting the earnings in the business. He wants to grow the business to generate more profit for his family and himself.