2-1, 2-8, 2-10) Wine Output (.75 Liter Bottles) 2. Output of 20,000 bottles, profit: $26,000 10,000 Bottles 15,000 Bottles 20,000 Bottles Variable production costs. $ 37,000 $ 55,500 $ 74,000 Fixed production costs. 100,000 100,000 100,000 Fixed selling and administrative costs. 40,000 40,000 40,000 Total $177,000 $195,500 $214,000 Wine Sales 10,000 Bottles 15,000 Bottles 20,000 Bottles Sales price per .75 liter bottle $18.00 $15.00 $12.00
The controller for Canandaigua Vineyards, Inc. has predicted the following costs at various levels of wine output. (2-57 a)
The company’s marketing manager has predicted the following prices for the firm’s fine wines at various levels of sales. (2-57 b)
2. Output of 20,000 bottles, profit: $26,000
Required:
1. Calculate the unit costs of wine production and sales at each level of output. At what level of output is the unit cost minimized?
2. Calculate the company’s profit at each level of production. Assume the company will sell all of its output. At what production level is profit maximized?
3. Which of the three output levels is best for the company?
4. Why does the unit cost of wine decrease as the output level increases? Why might the sales price per bottle decline as sales volume increases?
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