Azienda Vinicola Italiana Case
BACKGROUND OF THE STUDY
Azienda Vinicola Italiana produced and bottled wines. The company did not buy grapes but rather bought either mosto or bulk wine. They have seen that this policy had the disadvantage that the firm could not assure itself of a consistently high-quality product. Moreover, the administrative manager wished to re-organize the firm in order to exploit its productive capacity to the utmost and, above all, to increase the net profit, which the owners did not consider satisfactory.
The administrative manager assumed a maximum capacity of 900,000 bottles a year which would be equivalent to Lit 1,980 million. The administrative manager decided, therefore, to try to discover a way to change costs and revenue so as to obtain a profit of 176 million.
I. PROBLEM STATEMENT
How to re-organize the firm to achieve a profit of Lit. 176 million a year, which would be almost 9% of sales of Lit 1,980 million?
II. OBJECTIVES
a. to show the changes in income statement when selling price is assumed to increase.
b. to show the changes in income statement when fixed costs are assumed to decrease.
c. to show the changes in income statement when variable costs are assumed to decrease.
d. to purchase grapes instead of mosto or bulk wine to ensure the quality of the product.
A. The presentation below shows the Income Statement using the contribution margin approach to have a better view on the costs which are variable and fixed AZIENDA VINICOLA ITALIANA Income Statement (Contribution Margin Approach) For the Year 1993
Production Capacity – 871,850 bottles Unit Cost In Lire
SALES 2,203.79 1,921,370,000.00
Less: Variable Costs Labor Cost 245.78 214,282,000.00 Raw Materials 690.8 602,272,000.00 Axiliary Materials 451.36 393,514,000.00 1,210,068,000.00
Contribution Margin 815.85 711,302,000.00
Less: Fixed Costs Labor Cost
Azienda Vinicola Italiana produced and bottled wines. The company did not buy grapes but rather bought either mosto or bulk wine. They have seen that this policy had the disadvantage that the firm could not assure itself of a consistently high-quality product. Moreover, the administrative manager wished to re-organize the firm in order to exploit its productive capacity to the utmost and, above all, to increase the net profit, which the owners did not consider satisfactory.
The administrative manager assumed a maximum capacity of 900,000 bottles a year which would be equivalent to Lit 1,980 million. The administrative manager decided, therefore, to try to discover a way to change costs and revenue so as to obtain a profit of 176 million.
I. PROBLEM STATEMENT
How to re-organize the firm to achieve a profit of Lit. 176 million a year, which would be almost 9% of sales of Lit 1,980 million?
II. OBJECTIVES
a. to show the changes in income statement when selling price is assumed to increase.
b. to show the changes in income statement when fixed costs are assumed to decrease.
c. to show the changes in income statement when variable costs are assumed to decrease.
d. to purchase grapes instead of mosto or bulk wine to ensure the quality of the product.
A. The presentation below shows the Income Statement using the contribution margin approach to have a better view on the costs which are variable and fixed AZIENDA VINICOLA ITALIANA Income Statement (Contribution Margin Approach) For the Year 1993
Production Capacity – 871,850 bottles Unit Cost In Lire
SALES 2,203.79 1,921,370,000.00
Less: Variable Costs Labor Cost 245.78 214,282,000.00 Raw Materials 690.8 602,272,000.00 Axiliary Materials 451.36 393,514,000.00 1,210,068,000.00
Contribution Margin 815.85 711,302,000.00
Less: Fixed Costs Labor Cost