PLEASE HELP TO ANSWER THE FOLLOWING QUESTIONS BASED ON THE CASE BELOW (NOT MISSING ANY INFO):
1) What are major issues/problems?
2) What are the decision-makers goals and objectives?
3) Are there other stakeholder needs or preferences?
4) Are there any internal or external constraints to consider?
5) What is considered normal vs. abnormal spoilage in the wine-making process (distinction between normal and abnormal spoilage)?
6) Does the difference in accounting treatment for normal vs. abnormal spoilage give rise to any ethical issues in this case?
A Votre Sante (B): Process Costing and Decision Analysis in the Wine Industry Roopa Venkatesh Amy Fredin Jennifer Riley Associate Professor Associate Professor Associate Professor University of Nebraska - Omaha St. Cloud State University University of Nebraska - Omaha BACKGROUND two production departments, the Crushing and Fermenting department and the Bottling department. From her meetings, Myka Freven was recently hired as manager of A Votre Sante, she gathered that the company is using the weighted average a small independent Napa-Green-certified winery located in method of preparing production reports under a process costing the Napa Valley, California, American Viticultural Area (AVA) system. The managers in both departments consider all spoilage that is owned by her father, Jack Freven.' A Votre Sante (AVS), to be normal, and so, they ignore the costs of normal spoilage. which means "to your health" in French, has a reputation for This means no costs are added to goods that are spoiled, and producing quality chardonnay wine. In 2005, Jack expanded spoilage is not reported because the cost of normal spoilage is the family's grape-growing operations and founded AVS as a included in the cost of good units completed. means to involve his daughter in the wine business. Myka is a Furthermore, the managers noted that they have worked recent MBA graduate from the Haas School of Business at the hard to maintain the appropriate control measures and reduce University of California, Berkeley, and intends to take over the their abnormal spoilage to 0% in the last five years. So, they management of AVS in due time. inspect goods only at the end of the process in each department.Being Napa-Green certied1 the region's land use and environmental certication program, AVE is dilith about assessing cellar operations, implementing practices to conserve resources, improving comprehensive water and energy use, and conducting audits along with awaste diversion assessment. AVE buys chardonnay grapes from the family's grape- growing operations and processes the grapes into a chardonnay- estate wine. Local restaurants purchase AVE wine to serve to their customers. During her rst few weeks as manager1 Myka met with the managers and leamed that: the average demand and sales for the chardonnay estate was steady at 39,613!) bottles of wine, and the average price was US$9.00 per bottle. The company, however, is experiencing declining net prots. Therefore, she decided to revisit the company's costing and pricing policy. She also shared with the managers her goal of maintaininga gross prot ofm to cover AVE administrative expenses, which is consistent with operations ofwineries. Mylta met with the managers ofthe WIHEHAHIHG PHDBESS Harvest takes place in the late summer and early fall months; typically, due time elapsed from harvest to nal sale is about 11 months. The chardonnay grapes are purchased from AVE Vineyards at UE$L34 per pound, instead of purchasing from an outside vineyard. An important quality of Chardonnay wine is dependent upon the acidity of the grapes. Eo the grapes are picked from AVE Vineyards two weeks earlier than other producers. AVE Vineyard sells to other wineries in the market at US$1.34 per pound, and transfers to the AVE winery at the same market price ofUE$L34 per pound."I On average a purchase of 4|] pounds of grapes are required to produce one case {12r bottles) of wine. In August 201?, AVE purchased 332,336 pounds of grapes from AVE vineyards at US$1.34 per pound. The following are the major processes and departments in the winery: CRUSHING AND FERMENTING Bottling: Approximately 200 pounds of crushed grapes are Crushing: The grapes are transferred to the winery for washing filled in a barrel of wine. Each barrel transferred to the bottling and crushing after harvest. The crushing process separates department can yield 11 cases or 132 bottles of wine. Bottling the juice from the pulp, skin, and stems. The juice is used is a very important process, and AVS takes every precautionary to make the wine; the pulp, skin, and stems are recycled as measure, such as proper sanitation, cleaning, bottle washing, compost onto the fields whenever possible or disposed of controlling sulfur dioxide depletion, and inspecting in order according to the Napa Green certified land program. to prevent contamination and inefficient operations. Spoilage Fermenting: The extracted juice is initiated into the is 10%, and the accountant and managers have determined fermenting process. An important factor in the final taste of that all spoilage is considered normal and is detected at the chardonnay is whether the juice is aged in oak. Chardonnay end of the production process. They insist that spoilage is fermented using oak barrels, which gives flavor to the final in the Bottling department is related to the technology of product. White wines have a shorter timeline for aging, and the machines used in the facility. Since AVS does not have they are barrel-aged because they are meant to be consumed state-of-the-art technology, there is some spoilage related to within five years. All fermenting takes place in a temperature- bottle cracking or breaking during the filling process.' The controlled environment; however, each fermenting method managers believe that this spoilage is unavoidable. They are results in some wine loss through evaporation. The expected considering making an investment in two years to update the loss in volume through fermentation is 10% and is considered technology in the Bottling department. Tables 1 and 2 show to be normal spoilage.' At the end of this process, each barrel the information for August 2017. of wine is one awif. The department manager classifies all spoilage as normal, related to loss from fermentation.Table 1: Data for the Crushing and Fermenting Department for August 2017 Physical units Direct Conversion [barrels] materials costs Work in process, August 1 200 $68,400 $58,120 Degree of completion of beginning work in process 100% 70% Started during August 2017 1,500 Completed during August 2017 1,200 Work in process, August 31 500 Degree of completion of ending work in process 1009 60% Total costs added during August 2017 $513,000 $436,000 Note: All monetary values are in US dollars. Table 2: Data for the Bottling Department for August 2017 Physical units Direct Conversion [ barrels) Transferred-in materials costs Work in process, August 1 250 $100,000 $7,105 Degree of completion of beginning work in process 100% 0% 70% Transferred-in during August 2017 7 Completed during August 2017 300 Work in process, August 31 1,150 Degree of completion of ending work in process 100% 60% Total costs added during August 2017 ? $18,400 $14,025 Note: All monetary values are in US dollars
