Solution-Calculate the unit cost of wine production

Calculate the unit cost of wine production

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Reference no: EM131705605

The controller for Oneida Vineyards, Inc. has predicted the following costs at various levels of wine output.

Wine Output (.75 Liter Bottles)

	10,000 Bottles	15,000 Bottles	20,000 Bottles
Variable production costs .....................................	$ 44,400	$ 66,600	$ 88,800
Fixed production costs .........................................	120,000	120,000	120,000
Fixed selling and administrative costs ......................	48,000	48,000	48,000
Total ..............................................................	$212,400	$234,600	$256,800

The company's marketing manager has predicted the following prices for the firm's fine wines at various levels of sales.

                                                                                    Wine Sales
                                                                       10,000 Bottles    15,000 Bottles   20,000 Bottles
Sales price per .75 liter bottle    $21.60               $18.00            $14.40

Required:

1. Calculate the unit cost of wine production 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 that 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?

Reference no: EM131705605

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Calculate the unit cost of wine production

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Reference no: EM131705605

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