Kings Mountain Distillery Case Essay

Words: 1174
Pages: 5

1. All costs to “produce” the whiskey should be included in the cost of inventory.

- Raw materials like water, corn, barley malt, rye
- Other indirect material used in the production process
- Cost of barrels used in the aging process
- Labor and supplies of chemical lab
- Direct labor costs, e.g. of employees/operators working in the factory
- Depreciation of plant and warehouse equipment
- Building expenses for factory and warehouse
- Cost of filling the whiskey in bottles

All these costs are more or less directly related to the manufacture of liquor and should form a part of manufacturing expenses which should be charged to the cost of finished goods produced.

2. In the given current situation Kings Mountain
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5. There are several reason as explanation according to the text:
- Consultant fees for preparing files on distributors characteristics
- More visits (travel costs) of distributors
- Increase in advertising costs from $385,000 to $534,000 = $149,000
- More orders from small distributors  more handling and transportation costs
- Increase from $500 to $6,000 per distributor for new point-of-sales material and promotional allowances.

My recommendations:
- With the increased number of small orders KMD may think about to consolidate several orders before shipping. This would give them a chance to reduce freight costs.
- KMD can easily reduce the advertising costs. I think it´s not necessary to have the same advertising rate in every year.
- Other things like the above mentioned new point-of-sale material are one time fees. It should be possible to reduce these costs in the next fiscal year.
6. I think that KMD would not benefit from the introduction of ABC in its manufacturing operations. KMD only manufactures the whiskey, no other products and all costs are charged to this one product. The ABC system is mainly helpful when a company produces different goods. Then the system helps to get a better idea of how the costs are related to each of the product or product group.

7. Obviously there are two variances: rate and volume variance

a) Volume variance: number of tests performed
In 1996 the lab has to test the whiskey of the actual and the