Question

Denair Fine Wines, Inc., is planning to bring out a higher-quality wine product than any currently available in Stanislaus County. They’ve decided on selling the blended, fortified wine in 750 ml bottles under the name “Chateau St. Stanislaus Moondoggie Reserve” and is aiming at introducing the product at this year’s Graffiti Week celebration at a unit price of $6.99. Bottles cost 15 cents apiece, the screw caps 3 cents apiece, the raw grape juice can be purchased in any quantity at 12 cents per liter, fermentation for one week in Tupperware casks will cost 2 cents per liter, and packing and shipping to the event will cost 20 cents per bottle. All overhead and salary for the project amounts to $8750. How many bottles do they need to sell to breakeven? Show all work for credit.

Be careful in your calculations, and show all your work, on a piece of paper with every step you took to get the answer.

Answer 1

Answer:

Selling Price per unit = $6.99

Variable Costs per unit:

Bottle Cost per unit = $0.15
Screw Caps per unit = $0.03
Raw Grape Juice per unit = $0.12 * 750/1,000 = $0.09
Fermentation Cost per unit = $0.02 * 750/1,000 = $0.015
Packing and Shipping per unit = $0.20

Variable Costs per unit = Bottle Cost per unit + Screw Caps per unit + Raw Grape Juice per unit + Fermentation Cost per unit + Packing and Shipping per unit
Variable Costs per unit = $0.15 + $0.03 + $0.09 + $0.015 + $0.20
Variable Costs per unit = $0.485

Fixed Costs:

Overhead and Salary = $8,750

Contribution Margin per unit = Selling Price per unit - Variable Costs per unit
Contribution Margin per unit = $6.99 - $0.485
Contribution Margin per unit = $6.505

Break-even Sales (units) = Fixed Costs / Contribution Margin per unit
Break-even Sales (units) = $8,750 / $6.505
Break-even Sales (units) = 1,345 Bottles