Overview
Cost control is particularly important when the industry faces difficult conditions, and is good business discipline at any time. Activity based costing assigns costs such as labour, depreciation, materials, electricity, water and wine loss to 16 winemaking activities, from grape receival to dispatch, rather than to accounting line items. The report found average costs per kilolitre of wine were highest for bottling ($758), barrelling ($473) and tank maturation ($113), with wide variation between wineries. It showed how pricing wine loss, matter other than grapes and equipment depreciation can build a business case for process changes, such as moving from diatomaceous earth to cross-flow filtration.
Objectives
This project investigates the application of activity-based cost (ABC) modeling as a method for analysing life cycle costs of winery activities. The objective is to evaluate the benefits of undertaking ABC modeling to increase process efficiency within a winery.
Background
Understanding a winery’s costs provides information to improve winery cost performance. The role of ABC is to provide information about the cost of production activities with the aim of increasing the efficiency of winery operations.
The principle behind ABC is that activities in a business are the primary cause of costs. These activities consume resources, which in turn consume costs. Changing winery activities will therefore change these activity costs and therefore change operating costs.
Research approach
Activity Based Costing models were developed for Australian winery operations and then trialled at 11 diverse wineries. Data from these wineries was used to create an aggregated model. Data from this aggregated model was analysed to provide insight into the cost of winemaking activities and identify the largest opportunities for efficiency improvements.
Industry benefit
The tools generated by this project allow wineries to produce reliable, easy-to-use information about cost of production. The benefits of ABC include:
Performance metric data that provides better understanding of costs
Identification of activities that need efficiency improvements
Quantification of lost wine value
Cost impact of production changes easily modelled
Determine the actual cost of a wine SKU
Performance and cost benchmark data for meaningful comparison
ABC data highlights which Lean Production related projects to target.
Abstract
The original concept of activity-based costing was developed for manufacturing industries and these have been adapted to wineries in this project. An activity based costing (ABC) model provides a tool to quantify life cycle costs of production activities. These costs can include depreciation, waste, resource and other business costs. This project found ABC is a useful tool for enabling wineries to make informed decisions about increasing efficiency, competitiveness and profitability.
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Vineyard profitability
