MANAGEMENT ACCOUNTING –II
Assignment – II, Daniel Dobbins Distillery, Inc (Case Analysis)
Rahul Srivastava (WMP08034)
Vinay Joshi (WMP08045)
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…
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
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.
Logically Inventory costs include all the direct costs