Kiwi Cellars has many competitors in the New Zealand domestic premium wine market. The wines are judged similarly in quality & taste although KC employs different production and marketing methods. Dissatisfied with its current profitability, KC management is considering their competitive options. An accounting department analyst compiled the following data for the most recent year to facilitate our analysis.

Note: Assume that the company sells what it produces, thus they do not produce wine to hold over in inventory.

	KC	BenchmarkCompetitor
Sales price per unit (750 ml bottle)	$8.50	$8.00
Variable materials (grapes, bottles, etc.) per unit	$2.25	$2.75
Variable labor per unit	$1.25	$2.00
Variable production overhead (utilities, etc.) per unit	$1.00	$1.25
Fixed production overhead (depreciation, etc.)	$750,000	$250,000
Marketing, administrative and other fixed costs	$250,000	$150,000
Last years sales in units	350,000	400,000
Capacity in units	500,000	450,000

1. Demand in recent years has been volatile varying from a low of 200,000 to a high of 400,000 units. As a measure of the impact of this uncertain demand on profit by assuming demand increases or decreases by 10%.

Interpret the relative changes in profit.

2. Recommend a coherent plan for how KC could increase profit in the coming year and calculate the resulting profit for your plan.

Explain your answer, evaluating their current position relative to your recommendation.

3. Now assume that the data above for Kiwi actually consists of two wines with the following data:

	KC-Chard	KC-Shiraz
Sales price per unit (750 ml bottle)	$ 7.50	$ 11.00
Variable cost per unit	$ 4.20	$ 5.25
Last years sales in units	250,000	100,000

a. Describe the KC's Unit Level Cost-Volume-Profit (CVP) relationship.

b. Describe the Cost Behavior Analysis - by analyzing the Kiwi Cellar's business problems.

c. What are the concepts underlying cost-volume-profit analysis for Kiwi Cellars?

d. What can be said about the Breakeven and Profit Planning of the company

e. What can you conclude by conducting an Analysis of Operating Leverage