Cost Analysis of Wine River Winery: ABC Costing and Variance Analysis
Added on 2023-06-03
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Accounting 2012
Assignment
Assignment
Executive Summary
Background information to the Case
This case study concerns Wine River Winery - a small, boutique wine maker in Adelaide whose sales predominantly come from visitors to the
winery.
In an attempt to improve the profitability and efficiency of the production and sales operations as well as the customer service provided, the
Management of Wine River Winery has decided to undertake two major cost analysis systems.
1. ABC Costing analysis of the Barreling and Maturation Cost Centre
• Barreling and Maturation, which was previously pooled in one cost pool, concerns the ageing of fermented grape juice.
• As the costs for Barreling and Maturation account for 20% of the value of sales it was seen as a process that, should its profitability be
improved through ABC costing, would significantly improve the cost effectiveness of wine production.
• Under the new ABC costing system, it has been segmented into 5 different cost activities;
i. Laboratory Testing (driven by Lab hours), which is a fixed cost.
ii. Pumping, Racking and Returning (driven by Labour Hours), which is a variable cost.
iii. Barrel Replacements (driven by number of barrels used), which is a fixed cost.
iv. Barrel Cleaning (driven by litres of water used), which is a variable cost.
v. Other Costs (driven by number of barrels used), which is a variable cost.
2. Variance analysis of the budgeted sales prices and production costs.
• This has been implemented in order to analyse the extent to which the Budget is being offset by uncertain events as well as
• Develop a variance analysis model, that allowed for variances between the actual and budgeted selling price, as well as the various costs of
wine production to be measured and analysed.
This case study concerns Wine River Winery - a small, boutique wine maker in Adelaide whose sales predominantly come from visitors to the
winery.
In an attempt to improve the profitability and efficiency of the production and sales operations as well as the customer service provided, the
Management of Wine River Winery has decided to undertake two major cost analysis systems.
1. ABC Costing analysis of the Barreling and Maturation Cost Centre
• Barreling and Maturation, which was previously pooled in one cost pool, concerns the ageing of fermented grape juice.
• As the costs for Barreling and Maturation account for 20% of the value of sales it was seen as a process that, should its profitability be
improved through ABC costing, would significantly improve the cost effectiveness of wine production.
• Under the new ABC costing system, it has been segmented into 5 different cost activities;
i. Laboratory Testing (driven by Lab hours), which is a fixed cost.
ii. Pumping, Racking and Returning (driven by Labour Hours), which is a variable cost.
iii. Barrel Replacements (driven by number of barrels used), which is a fixed cost.
iv. Barrel Cleaning (driven by litres of water used), which is a variable cost.
v. Other Costs (driven by number of barrels used), which is a variable cost.
2. Variance analysis of the budgeted sales prices and production costs.
• This has been implemented in order to analyse the extent to which the Budget is being offset by uncertain events as well as
• Develop a variance analysis model, that allowed for variances between the actual and budgeted selling price, as well as the various costs of
wine production to be measured and analysed.
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