E 11. 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 Unit Costs in a Service Business