Azienda Vinicola Italiana Case

1477 Words6 Pages
BACKGROUND OF THE STUDY Azienda Vinicola Italiana produced and bottled wines. The company did not buy grapes but rather bought either mosto or bulk wine. They have seen that this policy had the disadvantage that the firm could not assure itself of a consistently high-quality product. Moreover, the administrative manager wished to re-organize the firm in order to exploit its productive capacity to the utmost and, above all, to increase the net profit, which the owners did not consider satisfactory. The administrative manager assumed a maximum capacity of 900,000 bottles a year which would be equivalent to Lit 1,980 million. The administrative manager decided, therefore, to try to discover a way to change costs and revenue so as to obtain…show more content…
RECOMMENDATION After a thorough discussion and analysis of the given data, we have chosen alternatives number one which is to increase the selling price and number three to decrease the variable costs since it generates higher contribution margin ratio which we considered to be the determinant in achieving the 176m profit. The contribution margin ratio tells a company how much of the contribution margin of its products change in response to an increase or decrease in sales volume. As the sales increases the contribution margin also will increase and will have an equivalent increase in profit. V. CONCLUSION By using the contribution margin approach of presenting the income statement of the company, we observed the behavior of costs which helped us in deciding the best alternatives to be use in solving the case of Azienda Vinicola Italiana. Though alternative number two (decreasing the fixed cost) can still generate the goal profit still it was not an ideal action, because fixed costs should remain fixed, we cannot change it over time and it will generate a low contribution margin. However, in the case when contribution margin is still low after all the decrease in variable costs and a corresponding increase in selling price, then that’s the time when the company should decide to decrease its fixed costs

More about Azienda Vinicola Italiana Case

Open Document