Question
Table 1: Data for the Crushing and Fermenting Department for August 2017 Physical Units Direct material Conversion WIP, Aug 1. 200. $68,400. $58,120 Completion of
Table 1: Data for the Crushing and Fermenting Department for August 2017
Physical Units Direct material Conversion
WIP, Aug 1. 200. $68,400. $58,120
Completion of beg WIP. 100%. 70%
Started Aug 2017. 1,500.
Completed, Aug 2017. 1,200.
WIP, Aug 31. 500
Completion of ending WIP. 100%. 60%
total cost added, Aug 2017. $513,000. $436,000
Table 2: Data for the Bottling Department for August 2017
Physical units. Transfer-in. Direct Material. Conversion
WIP, Aug 1. 250. $100,000. $0. $7,105
Completion of beg WIP. 100%. 0%. 70%
Trafer-in,Aug 2017. ?
Completed, Aug2017. 300.
WIP, Aug 2017. 1,150
Completion of ending WIP. 100%. 0%. 60%
Totalcostadded, aug 2017 ? $18,400. $14,025
REQUIREMENTS:
1.Production Report Analysis: Prepare production reports under the weighted average as well as the FIFO method. What is the cost per bottle under each method? What is considered as normal and abnormal spoilage, respectively in the wine making process? How are the costs associated with normal and abnormal spoilage treated? Is it appropriate to ignore the cost of normal spoilage because all spoilage is normal?
2.Decision Analysis: Myka would like to maintain a 50% gross pro t to cover AVS's administrative expenses of US$125,000 and target a 15% net pro t. What should the target cost per case be in order to achieve these goals? Does the current production report in AVS help achieve these targets? Does your nal production report show costs per case that will lead to achieving these targets?
3.Ethical Implications: What are the possible reasons for managers to state that all spoilage is normal? What additional information would you request from managers to con rm that there is no abnormal spoilage and that all spoilage is normal?
ENDNOTES
1" Votre Sant (B): Process Costing And Decision Analysis In The Wine Industry" is an extension of Priscilla S. Wisner, " Votre Sant: Product Costing and Decision Analysis in the Wine Industry,"
2AVAs are wine grape-growing areas established by the Department of the Treasury's Alcohol and Tobacco Tax and Trade Bureau. AVAs are established to help vintners better describe the origin of their wines. As of December 2018, there are 242 AVAs in the United States; the Napa Valley AVA consists of 16 sub-AVAs, each determined by geographical boundaries.
3"The average market price is from the 2016 grape crush report published in March 2017. Chardonnay average price per ton is US$2,673 in 2016. Commonly, grape purchase agreements between growers and wineries use the weighted average price per ton as a baseline for setting the contracted price per ton. The high and low per ton of chardonnay grape prices in 2016 were US$12,574 and US$400, respectively. Wine grape prices and production were up throughout California in 2016. The supply levels of grapes and the amount of juice generated from the grapes are dependent on the yearly climatic conditions and other factors, such as temperature, rootstock, and fertilizers used. For more, see: 2017 Report - Sonoma and Napa Premium Wine Grape Prices 2016.
4 Bacterial spoilage could also occur in the fermentation stage, because oak barrels are a specific source of bacteria. The correct operational protocol with sterile filtration procedures followed by the addition of sufficient sulfur dioxide should prevent potential spoilage from bacteria. The department managers have assessed that the procedures in the Crushing and Fermenting department follow the correct protocols to prevent such inefficiencies resulting in spoilage.
5 The industry is moving toward low-weight glass bottles with resistance to breakage. AVS purchases the best quality glass bottles but does not have state-of-the-art technology to fill the bottles. The pressure the glass encounters from the filling machine during the filling process leads to breaking of bottles, which is unavoidable.
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