Unit Cost Determination
The Pattia Winery is one of the finest wineries in the country. One of its famous products is a red wine called Old Vines. Recently, management has become concerned about the increasing cost of making Old Vines and needs to determine if the current selling price of $10 per bottle is adequate. The winery wants to achieve a 25 percent gross profit on the sale of each bottle. The information on the next page is given to you for analysis.
1. Compute the unit cost per bottle for materials, labor, and overhead.
2. How would you advise management regarding the price per bottle of wine?
3. Compute the prime costs per unit and the conversion costs per unit.
|
Batch size |
10,550 bottles |
|
Costs |
|
|
Direct materials |
|
|
Olen Millot grapes |
$22,155 |
|
Chancellor grapes |
9,495 |
|
Bottles |
5,275 |
|
Total direct materials costs |
$36,925 |
|
Direct labor |
|
|
Pickers/loaders |
$ 2,110 |
|
Crusher |
422 |
|
Processors |
8,440 |
|
Bottler |
13,293 |
|
Total direct labor costs |
$24,265 |
|
Overhead |
|
|
Depreciation–equipment |
$ 2,743 |
|
Depreciation–building |
5,275 |
|
Utilities |
1,055 |
|
Indirect labor |
6,330 |
|
Supervision |
7,385 |
|
Supplies |
9,917 |
|
Repairs |
1,477 |
|
Miscellaneous |
633 |
|
Total overhead costs |
$34,815 |
|
Total production costs |
$96,005 |