Question 3.4 Conduct a sensitivity analysis and use margin of safety to give Crooked Creek wine advice about two different proposed labour costing methods. Crooked Creek Wines operates a cellar door venue in which customers can sample and purchase wines. The average revenue per day is $750, variable cost per day is $250 and annual fixed costs for the cellar door operations is $95,000. Assume 290 operating days. Calculate the margin of safety in units and dollars and the margin of safety percentage based on the information above. If Crooked Creek Wines considers changing the labour costs for cellar door operations to include a commission for all wine sales of 2.5%, this would reduce the fixed costs to $90,000. Calculate the degree of operating leverage at 290 operating days under the two options the present cost structure and the commission.

a) Calculate the degree of operating leverage at 290 operating days under the two options the present cost structure and the commission.

b) Write a short summary of your analysis and include any recommendations to the management of Crooked Creek Wines