Problem: 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
Question 1 Calculate the unit costs of wine production at each level of output. At what level of output is the unit cost minimized?
Question 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?
Question 3 Which of the three output levels is best for the company?
Question 4 Why does the unit cost of wine decrease as the output level increases?