CASE] Adam Trnn Mnery Adam Tran Winery is lncated in the Niagara area nf snuthern Dntarin. Adam Tran started the winery in the early l'il'Fs as a means nf using the excess grapes h'nm his 1.rineyard. E-y experimenting with grapes and prnceming tech- niques, Adam Tran 1luu'lu'inery has been able tn prnduce an increasing number nf quality wines. Starting in the early 211305, the children and grandchildren nf Adam Tran 1were nperating and expanding the winery. It was cnnnacting with lncal 1vineyards fnr all grapes used in prnduetinn. There are 3D varieties nf wine that are placed intn fnur Adam Tran grnups fnr prnductinn, marketing, and management purpnses. Ihe grnups are Premium brands, Duality+, llifi'uality, and Pnpular. The prntability nf Adam I'ran 1|Winery is shnwn in Exhibit 1. Each grnup is managed by a seninr 1rice president, and all tnld the presi- dent that the allncatinn nf esteem capacity is unfair. There are cnn1p1aints that 100% cf plant capacity nsrerhead is being allncated tn grnup prnductinn nests rather than the capacity being used. This allncatin-n largely refers tn the amnrti- aatinn nf prnduntinn assets, as nnted in Exhibit 1. The winery mainly fncused an the lnng term prnducti-nn and marketing nf quality wines. Three years agn, the plant capacity was increased tn meet a BEI- Eshihit 1 Upccnting ltbcnmc {millinns nf anIa-n} Sales Cnst ni gnnds snld Ainm'nzalinn nf prn-ductinn assc1s Ernss prnl Selling and administrate-c emcnses Amni'nzalinn nf selling and administraliye assets Inlercsl expenses Clpcrating incnmc CASE 1: ADAM IRAN WINEH'I' Exhibit 2 Pmtahility by Pruduct Grnup [millluns uf tlullaua} Premium Quallly-l- Quallty Pupular Tntal Sales 1 235 951 Direct easteriaJa Direct labour 'nl'arjable userhean FLIed eyerheacl Grass prullt Variable 5 k A. FLted 5 45: A. Interest expenses III-parade: Ileana meesssssss assesses thesessss H Ulla-1 year grewth plan. That meant enee the additiunal capacityr came fully en s1ream {rare years age}, the 1Winery had excem capacity. It is presently eperating at Eln uf capacity. Its plant eperates 24 heurs a day fer each day at the year. Real grewth in sales [after subtracting ination} has been 4%- a year, and that is expected te enntinue late the future. The heard ef directs-rs is unhappy 1with the pretahility ef the Pupular 1shrines gruup. Exhibit 2 shears the pretahility ef each gruup, and the relatively pen-r perfermarlce cf the Pupular grcup. Neverthelem, the Pepular group is expected In grew faster than the ether three gruups, and sales and administra- tive capacity 1was put in place tn prepare fur that sales grunth. A number ef the beard members want te sell the Pepular grcup. ADMS45?U - FALL 2013 Question The president has asked you as a management accountant to provide her with advice on the allocation of escess capacity and the sale of the Popular wines group. Please use the case approach to respond to her request
