Kiwi Cellars Problem

Kiwi Cellars (KC) competes with many competitors in the New Zealand domestic premium wine market.

The wines are judged substantially similar in quality and taste though KC employs different production and marketing methods. Dissatisfied with its current profitability, KC management wishes to consider 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	Benchmark Competitor
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

Assignment:

Discussion Questions (No Math necessary)

In your own words, discuss the following concepts concerning the company:

In a write-up format, answer the questions with an organized thought process rather than just doing the math. This is meant to help you think thru the case.

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 Break Even Points and Profit Planning of the company

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