1. Calculate the unit costs of wine production and sales at each level of output. At what level of output is the unit cost minimized? | 10,000 Bottles| 15,000 Bottles| 20,000 Bottles|
Unit costs of wine production| $17.7| $13.03| $10.7|
Unit costs of wine sales| $18| $15| $12|
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? | 10,000 Bottles| 15,000 Bottles| 20,000 Bottles|
Production Costs| $177,000| $195,500| $214,000|
Sales| $180,000| $225,000| $240,000|
Profit| $3,000| $29,500| $26,000|
3. Which of the three output levels is best for the company? * In terms of profit, making 15,000 bottles is the best output level.
4. Why does the unit cost of wine decrease as the output level increases? -Although the variable production cost changes as the volume increase, the fixed costs remain the same. So as the volume increases, one bottle has less fixed cost.
Why might the sales price per bottle decline as sales volume increases? -Because increasing volume results in less unit price, the company might decide to sell their fine wines at lower price. Lower unit price might make lower sales price.
1. If Hoboken Industries continues to use 30,000 units of part MR24 each month, it would realize a net benefit by purchasing part MR24 from an outside supplier only if the supplier’s unit price is less than what amount? * Less than $14
(30,000 × 11) + 150,000 = (30,000 × ?) +60,000
2. If Hoboken Industries is able to obtain part MR 24 from an outside supplier at a unit purchase price of $12.875, what is the monthly usage at which it will be indifferent between purchasing and making part MR24? * Use 48,000 units
(12.875 × ?) + 60,000 =( 11 × ?) + 150,000