Chalice Wines Case
The Chalice Wine Group (CWG) is a wine producer has a prestigious reputation for producing consistently elegant wines. The CWG owns two vineyards (Chalice and Cimarron) and half of a third (Delta), and also owns three wineries (Chalice, Cimarron, and Alicia) and half of a fourth (Opera Valley). Chalice winery is the flagship of the four wineries, and founded in 1969. In June 1993, Chalice was the only publicly-held company in the United States whose principal business is the production and sale of premium wines. The four California wineries are located in different place. Each of them has their own president, typically the winemaker, and separate profit center separately.
The Chalice Wine Group has long story with
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The profit margin tells us that for every $1 sale, the company only gets profit at $0.054. So CWG can either reduce it’s costs, or increase it’s selling prices.
All the numbers shows us that in this Winery process, the performance is poor. The Cimarron spends too much in it’s assets investment. Because the overall utilization of the depreciable assets less than 10% annual capacity, the CWG can learn from the Lyford winery to lease the equipment and spaces to reduce it’s assets usage costs.
The distributor
In this process, the sale cost is $79.81/case, the operating cost is $15.08, and the assets cost is $41.06/case. In order to achieve a gross margin of 25%, the distributor has a 1/3 mark-up over cost, and the final price is $106.41/case. In this process, the distributor got the profit margin at 10.83%. And for every $1 assets investment, the company gets $2.59 revenue, but only $0.28 profit. The problem here is still the sale cost control. It’s looks like the distributor has great sales revenue, but the actual profit is very low. The difference is a big number of sale costs.
The Retail
The retailer marks up the wine to achieve a 25% gross margin at the process too, and make the price of the wine is $141.88/case. The cost of sales is $106.41/case, the operating cost is $5.82/case, and the assets cost is $48.68/case. So, we get the profit margin
Please note that if you decide to buy the company, you might become more conservative. Currently, you are the vice president/general manager and winemaker of Calaveras. If you buy the company as proposed, you will own 85% of the company. This means that you will relate to the company in two ways; as a manager, and also an owner. Therefore, I am assuming that you will become more conservative because it’s always better to expect less, so you wouldn’t forecast too positively. A reduction in forecasted real growth rate from 2% to 1-1.5% is what I am expecting you might do.
• Net profit margin has been negative and no major patterns over the 9 year period on net profit since the trend of the industry is based mostly on economic factors, and whether or not they secure contracts. Due to high percentage of COGS they are only left with a net profit of $980 or
The gross profit margin measures the amount of profits that a company generates from its operations without consideration of its indirect costs. Thehigher thegross profit margin, the greater the efficiency of a company’s operations (Besley & Brigham 2007). It means that the company is generating enough income to cover its operating expenses. On the contrary, a lower gross profit margin indicates that the business is not generating adequate income to cover its operating expenses.
If the company decided to sell the new product at price of D.Cr. 8.20, that means the full fixed expense of 1.20 is covered and the company will make high profit. However, the selling price of D.Cr. 8.20 is very high and under this price the company will sell the new product at a lower volume than what the company planned sale volume in the budget and that will affect the company in the market as a strong competitor in the food manufacturing. According to the case, the company sales volume drop to 30 tons when the product was sold at the price of D.Cr. 8.2. Thus, my recommendation are as follows:
The most suitable costing method Yeltin should adopt is the practical capacity in order to remove the factor of uncertain budgeted sales figure. For this approach and the practical capacity of 65000-22000 units, then the revised overhead costs come out to be $30. With the inclusion of material and labor costs, the cost of the cartridge stand at $52 and the additional royalty expense of $10 raises the overall per unit cost to $62. The selling price of the cartridge is fixed at $150. With this selling price, the gross margin is equal to $88. The gross margin percentage is equal to 59%. In comparison to the budgeted volume, the gross margin has increased by 14%. See below
The gross profit margin for CC is right around the industry average. Although the numbers seems to be decent, the costs of goods sold are too high. Next, looking at the operating profit margin, the numbers don’t look as great as they should. The numbers are low compared to the industry average in years 2001, 2004, and 2005. This may indicate that CC should look into their prices and costs. In 2001 the net profit margin was very low compared to the industry average. I am assuming this is due to the major expansion. It is also important to look more deeply into the numbers though because the net profit margin is lower compared to the industry average in all of the years. Once again CC should look into their costs and how efficient they are converting sales into actual profit.
Smaller firms such as the family run operations in Europe may not be able to realize these same cost efficiencies. Furthermore, grapes represent 50 to 70% of a winemakers COGS, thus the competition for sourcing high quality grape growers is quite high. Just as Mondavi does for 75% of its purchases, most premium wine makers enter into long-term contracts with growers to not only ensure that their demand is met but also to make sure that they receive grapes that are consistent in quality.
Consider a product line with 50% gross margins (after subtracting volume-related expenses from prices). The cost for handling an individual customer order is SEK 750, and the extra cost to handle a production order for a non-stocked item is SEK 2,250.
In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.
The Gross Margin ratio represents the percent of total sales revenue that TCI retains after incurring the direct costs associated with producing the goods and services sold by them. It helps us distinguish, as much as possible, between fixed and variable costs. With a 20%, 15%, or 10% projected increase in sales, for 1996, we calculated TCI’s GM ratio to be 41.85% , and in 1997 to be 41.84%. This means that around 42% of TCI’s sales dollar is available to pay for fixed costs, like its potential long-term debt to MidBank, and to add to profits.
Next, you find that all of the salespeople are paid a straight salary, and all receive exactly the
First, we have identified if there is really an insufficiency in the amount of selling prices set by the Sales Department, in reference to Exhibit 1 of the case. We did this through identifying the maximum amount of overhead costs that the company can incur for the three products and comparing it with the total overhead costs. See Table 1 for details.
Operating profit margin figures in the table above show the return from net sales[13]. However profit margin ratios are high enough for the 3 years, there is a fall from 12.86% to 11.26% during 2011-12. Sales revenue increases with a higher rate than gross profit so there is a poor
Assume that under no unusual circumstances (no storm), Jaeger sells 1,000 cases of Riesling. Consider different cases: 1. Jaeger harvests grapes in anticipations of storm. Then the total revenue will be equal to 12×1000×$2.85 = $34200. 2. Jaeger doesn’t harvest and there is no storm with 50% chance. 2.1. With 40% chance, sugar concentration is 25%, then the total revenue is 12 × 1000 × $3.50 = $42000 2.2. With 40% chance, sugar concentration is 20%, then the total revenue is 12 × 1000 × $3.00 = $36000 2.3. With 20% chance, sugar concentration is below 20%, then the total revenue is 12 × 1000 × $2.50 = $30000 3. There is storm with 50% chance 3.1. Storm causes botrytis
This equation is solved for the sales volume in units. c. In the graphical approach, sales revenue and total expenses are graphed. The break-even point occurs at the intersection of the total revenue and total expense lines. 8-2 The term unit contribution margin refers to the contribution that