Fine Grape Produces Premium Wine

question 120

Essay

Fine Grape produces premium wine.Its success in the industry is due to its quality,although all of its customers,wine shops and specialty grocery stores,are very cost conscious and negotiate for price cuts on all large orders.Noting that the wine industry is becoming increasingly competitive,Fine Grape is looking for a way to meet the challenge.It is negotiating with Culinary Delights,a regional specialty grocery store,to purchase a large order of wine.Fine Grape is currently producing at under-capacity and would like to keep its production facilities,gaining better economies of scale by increasing production.Culinary Delights has agreed to a large order but only at a price of $39 per bottle.The special order can be purchased in one batch with available capacity.Fine Grape prepared these data: Next month's operating information (per unit,for 10,000 bottles,made in 10 batches of 1,000 each)

No variable marketing costs are associated with this order,but Fine Grape has spent $2,500 during the past two months trying to get Culinary Delights to purchase the special order.Required:
(1)How much will the special order change Fine Grape's total operating income?
(2)How much would the special order change Fine Grape's total operating income if fine Grape is operating at full capacity and would lose the sale of the 2,000 bottles to regular customers?
(3)How might the special order fit into Fine Grape's competitive strategy?

Determine the total present value of uniform series of payments or deposits.

Compute the necessary initial investment required to achieve a specific financial goal over a given period.

Apply the principles of compound interest to ascertain the quarterly or semiannual withdrawals that deplete an account over a specified period.

Evaluate financial decisions involving amortized loans with monthly payments and compounded interest rates.

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Definitions:

Honoring a Note

The act of paying off a note payable or bond at its maturity, fulfilling the issuer's obligation.

Note Receivable

A note receivable is a financial asset representing a written promise to receive a specific amount of money, with interest, from another party by a certain date.

Percent of Sales Method

A financial analysis tool used to forecast future expenses or accounts such as bad debts, based on a percentage of sales.

Bad Debts Expense

Represents the amount of accounts receivable a business does not expect to collect and charges off as a loss in its financial statements.