Case Requirements
1. Refer to Case Exhibit 1 -A Votre Sante Income Statement. Classify each cost in the income statement as a fixed cost or a variable cost. Indicate your classifications in a table like the one below:
2. Using Teaching Note Exhibit 1 (above) as a guide, determine how many bottles of Riesling wine could be produced if A VS purchases the juice from 20,000 pounds of Champagne grapes available from another grower. Also, determine how many bottles of Blanc de Blanc would not be produced if A VS uses some of its generic white grapes to produce the Riesling wme.
3. Should AVS buy the Champagne grapes and produce Riesling wine if AVS wants to contribution margin ratio of 15% on sales of Riesling wine?
a. Hint: Determine the contribution margin that would be gained from producing Riesling wine. (Remember that the additional Champagne grapes have already been harvested and crushed. You are buying the juice from those grapes.)
b. Hint: Determine the contribution margin that would be given up because of reduced production of Blanc de Blanc.
c. Hint: Determine if the net increase in contribution margin would provide a contribution margin ratio of at least 15% of Riesling revenue.
4. Assume the price of the Champagne grapes is $1 .50 per pound (instead of $1 ), should A VS buy the Champagne grapes and produce Riesling wine (A VS would still want a contribution margin ratio of 15% on sales of Riesling wine)? Explain why or why not. 5. What additional qualitative information would you like to have before making this decision? Why is this qualitative information important (how would it impact your decision)?