Task: The controller predicted the following costs at various levels of wine output:
|
|
|
wine output (0.75 litre bottles) |
|
|
|
10000 bottles |
15000 bottles |
20000 bottles |
| variable production costs |
44,400.00 |
66,600.00 |
88,800.00 |
| fixed production costs |
120,000.00 |
120,000.00 |
120,000.00 |
| fixed selling and admin costs |
48,000.00 |
48,000.00 |
48,000.00 |
| Total |
|
|
212,400.00 |
234,600.00 |
256,800.00 |
The marketing manager predicted the following prices
|
|
|
|
|
|
|
|
|
10000 bottles |
15000 bottles |
20000 bottles |
| sales price per 0.75 litre bottle |
21.6 |
18 |
14.4 |
Problem 1: Calculate the unit costs of wine production at each level of output. At what level of output is the unit cost minimized?
Problem 2: Calculate companys profit at each level of production. Assume that the company will sell all of its output. At what production level is profit maximized?
Problem 3: Which of the three output levels is best for the company?
Problem 4: Why does the unit cost of wine decrease as the output level increases?