Freemark Abbey Winery Case Essay

621 Words Mar 9th, 2015 3 Pages
Freemark Abbey Winery Case The Freemark Abbey Winery must decide whether to harvest their grape crop before or after an incoming storm. If the storm is light there is a chance of the grapes developing a mold, which is beneficial to the flavor and increases the wine’s value. There is also a possibility that the grapes will not become botrytised and will simply absorb water which will reduce the wine value. There are a number of options available to the winery in this situation. The grapes may be harvested immediately, resulting in a reduced revenue. This option is low risk, but also has low return as the grapes will reach a market value of $2.85 per case. If harvested and sold in bulk the grapes will be values at only $1.00 per case. If …show more content…
This option is high risk, but also high return. The best option is to leave the grapes on the vine. By leaving the grapes on the vine the vineyard will have a 60% chance of making higher profit than if the crops are harvested immediately. The chance of making a lower profit than that of immediate harvest is only 40%. If the grapes or wine were sold as wholesale the chance for greater profit would be 100% with the grapes left on the vine. Because of the higher probability of high return on allowing the grapes to grow, this option is superior to immediate harvest.

Appendix
Calculation of Probabilities and Revenues:
Harvest immediately:
*Note that the probability of either of these outcomes is 100%. bottled wine:
$2.851 case×12000cases=$34200 bulk wine or bulk grapes:
$1.001 case×12000cases=$12000

Wait:
Storm:
botrytised:
$8.001 case×12000-12000×0.3cases=$8.001 case×12000-3600cases=$81 case×8400cases=$67200
P$67200=Pstorm×Pbotrytised=0.5×0.4=0.2 or 20% weak and thin concentration:
$2.001 case×12000cases=$24000
P$24000=Pstorm×Pnot botrytised=0.5×0.6=0.3 or 30%
No Storm: sugar > 25%:
$3.501 case×12000cases=$42000
P$42000=Pno storm×P25% sugar=0.5×0.4=0.2 or 20% sugar 20%:
$3.001 case×12000cases=$36000
P$36000=Pno storm×P20% sugar=0.5×0.4=0.2 or 20% acidity > 0.7%:
$2.501 case×12000cases=$30000
P$30000=Pno storm×P>0.7% acid=0.5×0.2=0.1 or

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