Laguna Company Operates a Wine Outlet in a Tourist Area $$\text { Answer a. Variable costs }( \$ 9 \times \quad \$ 6,750:750)$$

Laguna Company operates a wine outlet in a tourist area. One- gallon bottles sell for $18. Daily fixed costs are
$4,500, and variable costs are $9 per gallon. An average of 750 gallons is sold each day. Laguna Company has a capacity of 800 gallons per day.
Required:
a. Determine the average cost per gallon.
b. A bus loaded with 40 senior citizens stops by at closing time and the tour director offers Laguna Company
$450 for 40 gallons. Laguna Company refuses, saying they would lose $3.75 on each gallon. Is Laguna Company correct about the $3.75? Why or why not?
c. A fund- raising organization has offered Laguna Company a one- year contract to buy 300 gallons a day for
$10.75 each. Should they accept the offer? Why or why not? $$\text { Answer a. Variable costs }( \$ 9 \times \quad \$ 6,750:750)$$
$\begin{array}{ll}\text { Fixed costs } & \underline{4500} \\\text { T ot al costs } & \$ 11,250\end{array}$ Average costs = $11,250 / 750 = $15
$$\begin{array} { c r } \text { Average costs } & \$ 15.00 \\\text { Offer } ( \$ 450 / 40 ) & \underline { 11.25 } \\\text { Net loss } & \$ 3.75 \\\hline\end{array}$$ b. Laguna Company is correct that it would lose $3.75. However, since it is the end of the day, and assuming it has capacity, it should accept the offer since it covers the variable cost. It would make a contribution of $2.25 ($11.25 - $9.00) per unit for a total of $90.
c.
$\begin{array}{lc}\text { Capacity } & 800 \\\text { Offer } & \underline{300} \\\text { Net to other customers } & 500 \\\text { Currentaverage } & \frac{750}{250} \\\text { Lost regular sales } & \underline{250}\end{array}$
$\begin{array}{lr}\text { Lost regular sales [250 } \times(\$ 18-\$ 9)] & \$ 2,250.00 \\\text { Offer [250 }(\$ 11.25-\$ 9)] & \underline{562.50}\end{array}$