Carlos Sanguine, Inc., makes premium wines and table wines. Grapes are crushed and the free-flowing juice and the first- processing juice are made into premium wines ( bottles with corks). The second- and third- processing juices are made into table wines ( bottles with screw tops).

Management is concerned that the table wines have such a low margin. Some of the manag-ers urge that these lines be dropped. Competition keeps the price down to $ 7 per case, which causes some managers to question how the competition could afford to sell the wine at this price.

Effects of Discontinuing Table Wines
1. No effect on the sale of premium wines is expected.
2. The juice being used in the table wines can be sold to bulk purchasers to use in fruit juices for $150,000 per year.
3. The Table wine production facilities () tanks, refrigeration units, etc,) have no use in premium wine production. These can be sold for $ 350,000, net of disposalcosts.

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Summary of Operations for the Year Tons of grapes Average cost per ton 10,000 $190 Premium Wines Table Wines Number of cases produced and sold Selling price per case Revenues Grape costs Packaging costs Labor Selling and distributiont Manufacturing overhead 400,000 S11.00 $4.400,000 1.650,000 1,000,000 70,000 $7.00 $490,000 250,000 140,000 35,000 35,000 87.500 $ (57.500) 400,000 400,000 $ 750,000 Operating profit (loss) Manufacturing Overhead by Products Premium Wines $212,800 187.200 $400,000 Table Wines $37.200 50,300 $87.500 Total $250,000 237,500 $487,500 General winery costs Production facilities costs (depreciation and maintenance) Manufacturing overhead