INSIGHT

What most wineries get wrong about cost accounting

Jamie Emerson-Heery • March 25, 2025

Services: Cost Accounting Industries: Wine & Agribusiness

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The complex world of winery operations demands precise financial tracking, yet many wineries struggle with their cost accounting practices. From small boutique operations to large-scale producers, these accounting missteps can significantly impact profitability and growth potential.  

“A common issue among winery owners is misunderstanding what costs should be going into making a case of wine, and what estimates are needed.  It is all too common where we see artificially high margins with growing inventory values on the balance sheet, which may indicate the business is heading towards a serious excess inventory position that will require heavy discounts to right-size the operations.  Having the right systems in place from a cost accounting perspective is vital to any company’s long-term success.”  – Jamie Emerson-Heery, Partner – Assurance and Advisory 

6 cost accounting mistakes wineries make (and practical solutions) 

This article explores the critical cost accounting mistakes wineries make and provides practical solutions for better financial management, focusing on inventory valuation, production costs and overhead allocation. 

Failing to separate vineyard and winery accounting

Many winery owners attempt to manage their entire operation under a single accounting system. This approach overlooks the fundamental difference between vineyard operations, which function as traditional agriculture, and winery production, which requires manufacturing-style accounting.    

• The vineyard side typically operates on a cash basis, tracking immediate expenses and income within a growing season. However, the winery requires accrual accounting to properly track long-term investments, aging inventory and delayed revenue recognition.  
• This dual-system requirement often creates confusion and leads to misrepresentation of actual costs and profits. 

Wineries must invest in robust accounting systems that can handle both cash and accrual methods.  Don’t rely just on spreadsheets, leverage technology as best as possible.   

Mishandling inventory valuation 

Wineries frequently underestimate the complexity of inventory valuation. The extended production cycle, from grape to bottle, creates multiple inventory stages that require different valuation methods.  

A significant challenge lies in tracking bulk wine inventory movements and proper valuation during the aging process, including the critical monitoring of volume loss during barrel aging and tank transfers. Additionally, bottled wine inventory adjustments, including samples, promotional items and wine club allocations, impact total inventory value but serve different business purposes. 

Many wineries fail to implement proper systems for tracking these various inventory stages, leading to inaccurate cost calculations and potentially flawed pricing decisions. The complexity increases when dealing with multiple vintages and varieties simultaneously aging in the cellar. 

Overlooking hidden production costs and misallocating overhead expenses  

The true cost of producing wine extends far beyond grape prices and barrel expenses.  

“It’s easy to forget about all the various components going into producing a case of wine.  Once you think you have it all under control, take a step back and think ‘what’s missing here?  Did I capture vineyard rent expense?  All labor costs from cellar and bottling?  Or did I have too much excess capacity this year?’  These questions will help ensure inventory is properly stated so you can manage the business as tight as possible.”  – Jamie Emerson-Heery 

Equipment depreciation and maintenance expenses should be allocated to specific wine programs rather than treated as general overhead. Furthermore, utilities, cleaning supplies, laboratory costs and quality control measures all contribute to the total production cost but frequently remain unaccounted for in specific wine programs. 

The distribution of overhead costs poses a significant challenge for wineries of all sizes. Many operations fail to properly allocate these expenses across different wine programs and sales channels, leading to incorrect pricing decisions and profitability assessments. 

Direct-to-consumer sales channels, particularly tasting rooms, often suffer from improper overhead allocation. Many wineries fail to account for the full cost of staffing, facilities and samples when evaluating tasting room profitability. The complexity increases when considering shared resources between different sales channels and production areas. 

Inadequate technology integration 

While many wineries invest in production software and point-of-sale systems, they often fail to integrate these tools with their accounting systems. This disconnection creates data silos and makes accurate cost tracking nearly impossible.  

Modern winery operations require seamless integration between production tracking, inventory management, sales systems and accounting software. Without this integration, staff must manually transfer data between systems, increasing the risk of errors and creating inefficiencies in the accounting process. 

Sales-related costs that impact pricing and business decisions  

Different sales channels demand different cost accounting approaches. Many wineries apply the same costing methodology across direct-to-consumer, wholesale and wine club channels, missing crucial variations in operational costs.  Several key cost factors vary significantly between channels: 

Channel-specific packaging and handling requirements 

• Marketing and promotional costs 
• Shipping and logistics expenses 
• Sales team compensation 

Understanding these differences becomes crucial for accurate profitability analysis and strategic decision-making. Wineries must develop systems that capture and allocate costs appropriately for each sales channel while maintaining consistency in overall financial reporting. 

Moving forward with better cost accounting 

Implementing proper cost accounting requires a systematic approach and ongoing commitment to accuracy. Regular staff training on cost tracking procedures ensures consistent application of accounting policies across all departments. Integrated technology solutions that connect all aspects of the operation provide real-time visibility into costs and profitability. 

Working with BPM  

Partnering with a firm that understands the wine industry’s unique characteristics can prove invaluable when it comes to navigating these challenging cost accounting waters.  

BPM brings extensive wine industry experience and helps wineries implement effective cost accounting systems that drive profitability. Our team works directly with winery owners and managers to develop customized solutions that address specific operational needs while ensuring compliance with accounting standards and regulatory requirements. 

By partnering with BPM, wineries gain access to industry-specific knowledge and proven methodologies that transform their cost accounting from a challenge into a strategic advantage. Their comprehensive approach helps wineries build sustainable financial management practices that support long-term growth and profitability. To find out more, contact us.