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 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 produced in one batch with available capacity. Fine Grape has prepared the following data related to next month's operations (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 place 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?

Question

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 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 produced in one batch with available capacity. Fine Grape has prepared the following data related to next month's operations (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 place 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?

Quizplus · Accepted Answer

The Answer of 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 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 produced in one batch with available capacity. Fine Grape has prepared the following data related to next month's operations (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 place 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?

Fine Grape Produces Premium Wine