P 14-2: Chateau Napa Chateau Napa purchased a small vineyard and is producing magnum bottles (1.5 liters) pf Reedwood Cabernet Sauvignon. The wine is much sought after, and bottling the wine in larger bottles enhances its quality, prestige, and demand. Because of the limited size of the vineyard, the quantity of wine produced is fixed. The only decision variab the quality of the wine produced. Quality is a function of a host of factors: the quality of oak barrels used to age the wine, the ability to the oenologist (winemaker), the length of time it is aged, and so forth. In general, the more money spent on quality, the higher the price of the wine. Several experst rate wines, and the Wine Spectator's rating has become the industry standard. The following table summarizes how quality (as measured in expected Wine Spectator points with a scale of 0-100) varies with the amount of spending on quality and how various quality levels translate into price: * Expected Quality Wholesale Price Received Cost of Quality $90 95 100 105 110 115 120 125 130 135 140 145 90.00 91.08 92.10 93.08 94.01 94.90 95.75 96.57 97.35 98.11 98.83 99.53 $570.20 576.44 582.34 588.00 593.38 598.52 603.44 608.17 612.69 617.08 621.24 625.28 Note: magnums are produced in two-bottle sets. So if 4115 is spent on enhancing the quality of a two-bottle set, a quality rating of 94.90 is e

xpected and a final wholesale price Chateau Napa expects to receive is $598.52 per two-bottle set. The managers producing and marketing the Redwood Cabernet Sauvignon are evaluated ans compensated based on the balanced scorecard. Just two metrics are used in their scorecard: actual quality achieved and profits per two-bottle set. Half the bonus is based on quality achieved using the following formula-

requirement c