Inventory and Costs Essay

Words: 2163
Pages: 9
Open Document
IIM Lucknow, Noida Campus

MANAGEMENT ACCOUNTING –II
Assignment – II, Daniel Dobbins Distillery, Inc (Case Analysis)

Submitted By:
Rahul Srivastava (WMP08034)
Vinay Joshi (WMP08045)
ANALYSIS
Company History * Founded in 1880 in Oakwoods by Daniel Dobbins. * Major product is Old Trailridge Bourbon Whisky * High quality of whisky due to the unusual iron-free spring water used in the distillation process and the specially prepared fire-charred white oak barrels used in the aging process. * David Dobbins takes over in 1973. * Constant demand over the years * High demand surge forecasted due to maturity of Baby boom generation.

Manufacturing Process * Ingredients controlled by laws. * Barrels can …show more content…
Listing the above mentioned costs as part of the balance sheet will overstate the assets and understate the expenses misleading the actual profitability of the company.
Alternatives
1. Leave all accounts as they are. 2. Transfer Cost of Barrel from Other Costs in the Income Statement to the Balance Sheet as a Contra-Asset that is part of Inventory. Transfer Ageing Costs from the Income Statement to the Balance Sheet and list it under Long Term Contra-Assets. Break up Warehouse Labor into different temporary accounts that are spread out both on the Income Statement as well as the Balance Sheet.
Evaluation of Alternatives

Alternative 1:
Strengths: This alternative improves the Net Profit figure in the Income Statement by increasing the value of Closing Inventory in the Balance Sheet.
Weaknesses: Breaking up Warehouse Labor and accurately allocating the costs across the two financial statements may not be feasible.
Opportunities: Choosing this alternative immediately improves its chances of securing the $3,000,000 loan from the bank.
Threats: Carrying out this alternative poses the risk of the company getting unfavorable press which may have a negative impact on its reputation. Another threat is that this alternative could be misused by senior management as a way of hiding inefficiencies, bad expenses, overstating retained earnings, and understating expenses.
Alternative 2:
Logically Inventory costs include all the direct costs
Show More

Related Documents: Inventory and Costs Essay

Essay on Powerpoint: Inventory and Cost

Chapter 6 Inventories and Cost of Sales QUESTIONS 1. (a) FIFO: The cost of the first (earliest) items purchased in inventory flow to cost of goods sold first. (b) LIFO: The cost of the last (most recent) items purchased in inventory flow to cost of goods sold first. 2. Merchandise inventory is disclosed on the balance sheet as a current asset. It is also sometimes reported in the income statement as part of the calculation of cost of goods sold. 3. Incidental costs sometimes are ignored…

Words 7015 - Pages 29

Psychology: Inventory and Date Units Cost Essays

CHAPTER 6 BRIEF EXERCISE 6-6 Cost of good sold under: Purchases Cost of goods available for sale Less: Ending inventory Cost of goods sold LIFO $6 X 100 $7 X 200 $8 X 150 $ 3,200 1,160 $ 2,040 FIFO $6 X 100 $7 X 200 $8 X 150 $ 3,200 1,410 $ 1,790 Since the cost of goods sold is $250 less under FIFO ($2,040 – $1,790) that is the amount of the phantom profit. It is referred to as “phantom profit” because FIFO matches current selling prices with old inventory costs. To replace the units sold, the…

Words 601 - Pages 3

Tutorial Solution Chapter 8 1 Essay

units in the ending inventory. 500 @ $4.58 = $2,290 200 @ 4.60 = 920 700 $3,210 Ending inventory at FIFO cost. 2. $9,240 cost of goods available for sale  2,100 units available for sale = $4.40 weighted-average unit cost. 700 units X $4.40 = $3,080 Ending inventory at weighted-average cost. (b) Analysis of methods FIFO will yield the highest ending inventory and therefore the highest current ratio. FIFO uses the most recent costs to price the ending inventory units. The company…

Words 436 - Pages 2

Inventory and Goods Sold Merchandising Essay

Chapter 6 outline: Inventory and Cost of Goods Sold Merchandising Companies: perchance inventories that is primarily in finished form for resale to customers. There are two types of merchandising companies 1. Wholesalers: resell inventory to retail companies or professional users. 2. Retailers: purchase inventories from manufactures or wholesalers and then sell this inventory to end users. Ex. Best buy, target Manufacturing Companies: manufacture the inventories they sell, rather than buying them…

Words 1011 - Pages 5

chapter 8 accounting Essay

8 INVENTORIES AND THE COST OF GOODS SOLD Chapter Summary The chapter is a detailed introduction to the cost flow assumptions used to value inventories and measure the cost of goods sold. Application of specific cost identification, weighted average cost, and FIFO is first examined within the context of a perpetual inventory system. The impact of the flow assumption employed on income taxes is discussed in detail. The need for a physical inventory to assess inventory shrinkage is also reviewed…

Words 1866 - Pages 8

Essay on Fifo and Lifo Inventory Methods

FIFO and LIFO Inventory Methods Tonia Green Accounting 211 – Financial Accounting Excelsior College FIFO and LIFO Inventory Methods This paper will provide a comparison of the accounting implications of valuing inventory under the First-in, First-out (FIFO) and Last-in, First-out (LIFO) methods. With very few exceptions, every business depends on an inventory to operate. Whether the business provides a service or sells products to its consumers, supplies and stock are required to operate…

Words 1028 - Pages 5

Essay about Sm Ch 16

Ex. 16.9 Topic Product vs. period costs Direct material used Cost of goods sold Materials inventory Direct labor journal entries Manufacturing overhead assigned Inventory balances Work in process balances Prime vs. conversion costs B. Ex. 16.10 Partial balance sheet Exercises 16.1 16.2 16.3 16.4 16.5 16.6 Topic Accounting terminology Basic types of manufacturing costs Product and period costs Flow of costs through manufacturing accounts Schedule of cost of finished goods manufactured Flow of…

Words 9236 - Pages 37

Essay on Chapter 7 Inventory Review Questions

INVENTORY REVIEW QUESTIONS 1. Ringo Starr Company agreed to purchase certain inventory items from John Lennon Corporation. Lennon shipped the goods F.O.B. destination. On December 31, Ringo’s accounting year-end, Ringo was aware that the goods had been shipped and would be received any day. Ringo should: -Should not be included because the title has not been passed on, since it’s the seller who is paying for the shipping cost a. include the goods in its inventory calculated on December 31. b. include…

Words 990 - Pages 4

AIPOD FND154 W3A1 Sah K Essay

category is the cost of goods sold, or the total cost of merchandise sold during the period. The second category are operating expenses, which are selling and administrative expenses. One of the most important financial concepts needed to run your business is the computation of gross profit. The tool used to maintain gross profit is called markup. Gross profit is calculated with the formula, sales minus the cost of goods sold, equals the gross profit. In a merchandising company, inventory may consist…

Words 515 - Pages 3

Midterm MSci 6333 W2014 Essay

#___________________ MSCI 633: Production and Inventory Management, Winter 2014 Midterm, February 13, 2014 [10 marks] Fill the blank, multiple choice, true/false questions: [1 mark each except Q.1] 1. Inventory management considers two major trade-offs: [1 mark each] a. Inventory holding costs vs. inventory _____________ costs. b. Cost of excess inventory vs. cost of _________________________. 2. We have seen that over the years the $ value of inventories in the U.S. has increased. What is the correct…

Words 728 - Pages 3