This is version 1 accounting written report. I need you to make another version, and do not change any chart. This was a previously finished work. So you can use this file as an example, and rewrite a new written report.

A Votre Sante (AVS) CVP Income Statement For 2010 Sales Variable Costs: Total Variable costs Contribution margin Fixed Costs: Total Fixed Costs Net Income Total $848,000 Grapes : 124,000 Bottle, Labels, Corks: 122,500 Harvest Labor: 18,000 Crush Labor: 3,000 Indirect Materials: 6,329 Barrels: 4,725 Liquor Taxes: 147,000 Sales Commissions: 98,000 $523,554 $324,446 Depreciation: 8,100 Lab Expenses: 8,000 Production Office: 12,000 Utilities: 4,500 Waste Treatment: 3,000 Wine Master: 15,000 Supervisor: 55,000 Administrative Rent & Office: 20,000 Sales Manager: 30,000 Administrative Salary: 75,000 $230,600 $93,846 The following chart represents a contribution margin income statement for AVS. The chart separates the variable costs from the total sales; the fixed costs are also deducted from the contribution margin that was determined by subtracting the various costs from the total sales. The total amount of sales for the year of 2010, $848,000, incurred variable costs of $523,554 (61.7% of total sales) and fixed costs of $230,600 (27.2% of total sales). The total amount of sales has a contribution margin of $324,446 (38.3%) which is indicates the profit before incurred fixed costs. The net income amount, $93,860, states the available/remaining profit after all costs have been deducted. *RED indicates the incurred costs Grapes Total pounds of grapes Chardonnay - 2009 harvest: 100,000 pounds Grapes: - loss through fermentation: 10% 100,000 pounds X 10% = 90,000 pounds AVS wine types Chardonnay-Estate (using all chardonnay grapes) Bottle (3 pounds grapes per bottle) 24,000 bottles (24,000 X 3 pounds = 72,000 pounds) Remaining pounds of grapes 18,000 pounds (90,000 - 72,000) 0 Generic White - 2009 harvest: 60,000 pounds - loss through fermentation: 5% 60,000 pounds X 5% = 57,000 pounds Regular Chardonnay (2 parts Chardonnay grapes & 1 part generic grapes) Blanc de Blanc (using all generic white grapes) 9000 bottles (18,000 pounds of Chardonnay grape/ 2 ) 48,000 pounds (57,000 - 9,000) 16,000 bottles (48,000 / 3) 0 Total : 49,000 bottle (24,000 + 9000 + 16,000) The chart above exhibits data concerning the relation between the amounts of grapes purchased to the amount of bottles that will be produced. The amount of grapes purchased from the 2009 harvest is displayed in pounds: 100,000 lbs of AVS family vineyard chardonnay vineyard grapes and 60,000 lbs of regular generic grapes. As the purchased grapes are processed and fermented, a 10% loss is incurred for the Chardonnay grapes as well as a 5% loss for generic grapes. AVS uses the two available categories of grapes, after the grapes have been extracted into juices, to produce three different types of wine: Chardonnay-Estate, Regular chardonnay, and the Blanc de Blanc. The formula for the production of each type of wine is different. The highest grade, Chardonnay-Estate, will be composed solely of the chardonnay grapes. The mid-grade, Regular Chardonnay, will be manufactured by the mixture of two parts chardonnay grapes and one part regular generic grape. The remaining generic white grapes will be made into the lower grade Blanc de Blanc. AVS manufactures 24,000 bottles (2000 cases) of the highest grade wine which requires 72,000 lbs of the chardonnay grapes. From the 72,000 used from the Chardonnay-Estate wine production, 18,000 lbs of the remaining chardonnay is mixed with 9,000 lbs of generic grapes to create the Regular Chardonnay. Lastly, all the remaining generic white grapes are produced into the lowest grade, Blanc de Blanc, which the remaining 48,000 pounds becoming 16,000 bottles. Refer to the top chart for more detailed information and formulas for each solution. The weighted average revenue per bottle (determined by Total Sale/Total Units) is $17.31 ($848,000/49,000 bottles). The weighted average operating margin per bottle (determined by Net Income/ Total Units) is $1.92 ($93,846/49,000 bottles). Purchasing the additional 20,000 lbs of Chardonnay grapes of the 2009 harvest from an external source will provide AVS opportunity to create a new category of Chardonnay wine. This newly created brand will be priced differently ($14 per bottle) and will not incur any additional fixed costs; also some of the variable costs will be neutralized as well. The charts below present the information regarding the decision of obtaining the additional grapes. Chardonnay Grapes Loss through fermentation (10%) Total (20,000 - 2,000) 20,000 lbs 2,000 lbs 18,000 lbs -A 10% loss will still exist as the juice of the grapes is purchased, not the fermented versions of the juice. Therefore, AVS will have 18,000 lbs of Chardonnay grape (fermented juice) left over to produce the new wine. Blend formula Chardonnay Grapes Generic White Grapes (post-fermenting) Total grapes required (18000 + 9000) Cases of new Chardonnay wine (27,000 / 36) Bottles (750 * 12) 750 cases 9,000 bottles -The chart above shows the total weight of the grapes that will be required to manufacture the new category of chardonnay. The formula 2:1 (chardonnay to generic grapes) explains the total of 27,000 lbs of required grapes (18,000 + 9,000). -Above shows how many bottles that will be available for sale if the opportunity is undertaken. New Chardonnay Wine Revenues ($14 * 9,000) *Grapes (Generic) Bottle, Labels, Corks ($2.50 * 9,000) Indirect Materials ($1.55 * 750) Barrels (20,000 / 1,600) * ($500 - $200 / 4years) Liquor Taxes ($3 * 9000) Distribution ($2 * 9000) Wine Master $6,120 22,500 1,162.50 975 27,000 18,000 5,000 Net Income -Signifies the income statement for the sale of the newly developed wine. The costs of the newly purchased grapes are not included in this statement above. -*Grapes explained: Generic grapes, $38,500 / $57,000 [60,000 - 3,000 (5% loss)] = 0.6754 = $0.68 per pound. $0.68 per lb x 9,000 lbs grapes = $6,210 -Barrels explained: 1 barrel = 40 cases = 1,440 lbs [1,600 - 160 (10% loss)]. The cost of expanding/creating a new chardonnay wine involves opportunity costs that are present due to the loss of producing Blanc de Blanc line of wines. Blanc de Blanc predominantly uses generic white grapes, however if the additional chardonnay grapes are purchased, most of those generic white grapes must be used to create the new wine. Cases of Blanc de Blanc wine (9,000 / 36) Bottles (250 * 12) 250 cases 3,000 bottles -Above shows the amount of cases/bottles that must be forfeited if the new opportunity to make new chardonnay wines prevails. Blanc de Blanc Wine Revenues ($11 * 3,000) Grapes (Generic) Bottle, Labels, Corks ($2.50 * 3,000) Indirect Materials ($1.55 * 250) Liquor Taxes ($3 * 3,000) Distribution ($2 * 3,000) $6,120 7,500 387.50 9,000 6,000 Net Income (Lost Contribution Margin) -There will be an opportunity cost of $3,992.50 if the new opportunity is undertaken, as the Blanc de Blanc line is revoked. By deducting opportunity cost ($3,992.50) from the net income ($45,242.50) will result in profit of $41,250. -The required 15% return on sales must $18,900 (determined as 15% of $126,000) -The total net benefit would therefore be $22,350 ($41,250 - $18,900) -ultimately the maximum price at which AVS would pay for the pound of grapes can be determined by using the total benefit amount calculated above. The maximum price AVS should play is $1.12 per lb of grapes. ($22,350 / 20000 lbs of grapes). Numerous factors are present to support the purchase of the additional grapes. If the qualities of the grapes are superior to the one already possessed, then AVS would benefit most by obtaining better materials for a smaller rate. By obtaining the additional grapes, AVS may be able to deny a competitor the same opportunity. AVS may also have an opportunity to increase market share by offering new products. Potential usage of idle resources as well as additional leverage over fixed costs serves as a paramount distinction of the new wine line. Above all, additional time and effort may be attended to the quality control of the product to enhance the company overall image and attraction. Several dissuading factors also exist concealed behind the new opportunity. Contradictory to the statement above, the quality of the grapes may be unfavorable; the quality control over the harvest and crush process will also not be available. Lack of confidence in the additional sales forecast may eventually result in negative results as well. Most importantly, the largest dissuading factor may be not having the excess capacity to produce additional units. The favorable aspect of the new opportunity is not incurring any extra fixed costs, however if those advantages are unavailable, the opportunity may be much more costly. Product Profitability Analysis: 1. Product cost and gross margin of each type of wine: Chardonnay -Estate Regular Chardonnay Blane de Blanc Total amount cost of goods sold /Sales Revenue Administrative & Sales Costs Operating Margin Operating Margin Ratio Sales Revenue Cost of goods sold Gross Margin Gross Margin Ratio 528,000.00 196,239.24 331,760.76 62.83% 37.17% 195,173.27 136,587.49 25.87% 144,000.00 73,840.01 70,159.99 48.72% 51.28% 66,503.66 3,656.33 2.54% 176,000.00 114,074.75 61,925.25 35.18% 64.82% 108,323.07 -46,397.82 -26.36% 848,000.00 384,154.00 463,846.00 54.70% 45.30% 370,000.00 93,846.00 11.07% -Illustration 1 2. Unit product gross profit of each type of wine: Unit Price Unit Sale Unit Cost Unit Gross Profit Chardonnay -Estate 22.00 24,000 8.18 13.82 Regular Chardonnay 16.00 9,000 8.20 7.80 Blane de Blanc 11.00 16,000 7.13 3.87 -Illustration 2 3. 4. 5. Analysis of illustrations and charts 1 - 5: First, the gross margin/gross margin ratio is a profitability ratio that measures how much of every dollar of revenue remains after paying the cost of goods sold (COGS). Second, the operating margin ratio, also known as the operating margin, is a profitability ratio that measures what percentage of total revenues is made up by operating income. It means how much a product makes (before interest and taxes) on sales. As a result, these metrics show how strong and profitable a product's operations are; also more efficient products will usually see higher gross margin and operating margin. Regarding the case presented in the situation: 1. The Chardonnay-Estate brings the highest profit in three types of wine. It is the most profitable product in AVS. 2. The Blanc de Blanc wine has a negative effect for product profitability and finally loss $46,397.82 operating margin. 3. The Regular Chardonnay wine is also a profitable product in AVS, but it just adds only $3656.33 profit in operating margin. Its profitability is much weaker than the Chardonnay-Estate wine. In summary, the best feasible recommendation for AVS is to extend the Chardonnay-Estate's production scale because it could bring much more profit compared against the other two products. On the other side, study shows that the average gross profit margin of winery to sell the bottle to the distributor is around 50% gross profit margin. Therefore, an increase in the sales price or a better control over the cost of goods sold in the Blanc de Blanc wine will result in increased profit. Alternatively, the Blanc de Blanc wine production may be discontinued to develop a new product that will possibly result in increased profits or have a lower cost of goods sold. Ultimately, the wine master may have to pay more attention to the control of the sales volume; especially on the regular Chardonnay wine. As a result of the regular Chardonnay wine having an operating margin ratio of only 2.54%, the operating margin ratio will decrease as sales volume suffers a loss; as a result, the profitability will easily decrease with decreased sales. -A detailed income statement of each type of wine will be present in the next page. A Votre Sante Income Statement in Each Type of Wine-2010 Chardonnay-Estate 528,000.00 Regular Chardonnay 144,000.00 Blane de Blanc 176,000.00 Grapes 68,400.00 23,178.95 32,421.05 Bottle , Labels, Corks 60,000.00 22,500.00 40,000.00 Harvest Labor 10,071.00 3,375.00 4,554.00 1,500.00 552.63 947.37 Tractors Crusher Holding Tank Bottle Lines 3,100.00 839.25 300.00 0.00 489.80 1,162.50 281.25 110.53 315.79 183.67 2,066.50 379.50 189.47 1,684.21 326.53 Other Production Equipment 1,469.39 551.02 979.59 Total Depreciation 3,098.44 1,442.26 3,559.30 Lab Expenses 4,800.00 2,000.00 1,200.00 Production Office Utilities 5,877.55 2,204.08 2,204.08 826.53 3,918.37 1,469.39 Waste Treatment 1,469.39 551.02 979.59 Wine Master 5,000.00 5,000.00 5,000.00 Revenues Product Costs Crush Labor Indirect Materials Depreciation Supervisor Barrels 26,938.78 3,780.00 10,102.04 945.00 17,959.18 0.00 Total Product Costs 196,239.24 73,840.01 114,074.75 Gross Margin 331,760.76 70,159.99 61,925.25 62.83% 48.72% 35.18% 9,795.92 3,673.47 6,530.61 Liquor Taxes 72,000.00 27,000.00 48,000.00 Sales commissions 48,000.00 18,000.00 32,000.00 sales manager 18,679.24 5,094.34 6,226.42 Administrative Salary Total Administrative & Sales Costs 46,698.11 12,735.85 15,566.04 195,173.27 66,503.66 108,323.07 Operating Margin 136,587.49 3,656.33 -46,397.82 25.87% 2.54% -26.36% Gross Margin Ratio Administrative & Sales Costs Administrative Rent & Office Operating Margin Ratio