The controller for Canandaigua Vineyards, Inc., has predicted the following costs at various levels of

wine output.

_______________Wine Output (.75 Liter Bottles)_________

100,000 Bottles 15,000 Bottles20,000 Bottles

Variable production costs$37,000$55,500$74,000

Fixed production costs$100,000$100,000$100,000

Fixed selling and administrative costs$40,000$40,00 $40,000

Total$177,000$195,500$214,000

The company 's marketing manager has predicted the following prices for the firm's fine wines at

various levels of sales.

________________Wine Sales____________________________

10,000 Bottles15,000 Bottles20,000 Bottles

Sales price per .75 liter bottle

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?

2. Calculate the company's profit at each level of production. Assume the company will sell all of its output. At what production level is profit maximized?

3. Which of the three output levels is best for the company?

4. Why does the unit cost of wine decrease as the output level increases? Why might the sales price per bottle decline as sales volume increases?