2. Sta. Elena produces and sells wines. Their current capacity is 100,000 gallons a year. Last year, they sold 100,000 gallons of wine, 12% of which were in 60-gallon barrels, 58% in 1-gallon jugs, and 30% in 0.2- gallon bottles. The base selling price is $20 per gallon in barrels. The selling price for wine in jugs per gallon is 25% higher, while that in bottles per gallon is 40% higher. Variable cost based on the selling price is 50% for barrels, 60% for jugs, and 70% for bottles. The annual fixed expenses amount to $500,000. Management would like to know the breakeven quantity for each of the three products, the net profit for the year, as well as what strategy to implement to increase net profit, while keeping fixed costs, and variable cost ratios constant.

2. Sta. Elena produces and sells wines. Their current capacity is 100,000 gallons a year. Last year, they sold 100,000 gallons of wine, 12% of which were in 60-gallon barrels, 58% in 1-gallon jugs, and 30% in 0.2- gallon bottles. The base selling price is $20 per gallon in barrels. The selling price for wine in jugs per gallon is 25% higher, while that in bottles per gallon is 40% higher. Variable cost based on the selling price is 50% for barrels, 60% for jugs, and 70% for bottles. The annual fixed expenses amount to $500,000. Management would like to know the breakeven quantity for each of the three products, the net profit for the year, as well as what strategy to implement to increase net profit, while keeping fixed costs, and variable cost ratios constant.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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