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 following information is given to you for analysis:

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

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.