Question

1. O’Brien Vineyards is a producer of an award winning Pinot Noir. Please identify each cost driver below as either a Direct Materials, Direct Labor, Manufacturing Overhead, Marketing and Selling or Administrative. (each worth 2 points)

Cost Driver                                                                                          Type

The wages of employees who make wine.

The cost of advertising in Wine Spectator Magazine.

The cost of grapes used in the Pinot Noir.

The wages of production shift supervisor.

Rent on the production facility.

The salary of the O’Brien Vineyards company president.

Sales commissions paid to the O’Brien Vineyard’s salespeople.

Depreciation on wine bottling equipment.

Answer 1

Particulars Cost driver

The wages of employees who make wine - Direct labour ( since with the labour only process will happen and directly associated with production)

The cost of advertising in Wine SpectatorMagazine - Marketing and Selling expense ( advertising a product to increase sales)

The cost of grapes used in the Pinot Noir - Direct Material ( From which wine will come , raw material for wine)

The wages of production shift supervisor - Manufacturing overhead ( amount is fixed for every month regardless of production)

Rent on the production facility - Manufacturing overhead ( amount is fixed for every month but in case of rent of office then it would be administrative cost)

The salary of the O’Brien Vineyards company president - Administrative ( Not associated with production)

Sales commissions paid to the O’Brien Vineyard’s salespeople- Selling and marketing expenses ( since sales people commission will be paid based on increment of sales)

Depreciation on wine bottling equipment- Manufacturing overhead ( these are the costs are required to build products other than variable costs)