Management Accounting

Term Assignment On

Daniel Dobbins Distillery, Inc (Case Analysis)

POST GRADUATE DIPLOMA IN MANAGEMENT

(Term-2; Batch 2019-21)

Under the Supervision of

Prof. Ravi Agarwal

Submitted by

STUDY GROUP 5

ROLL NUMBER NAME

PGFC1914 Manish Vijay
PGFC1915 Md. Moiz Ali
PGFC1916 Nancy Gupta
PGFC1934 Srishti Joshi
Daniel Dobbins Distillery, Inc
Case Analysis

The unique feature of this case is its high quality, high price single product which is the
only brand of fine bourbon whiskey - OLD TRAILRIDGE.

It was the result of the unusual iron free spring water used in the distillation process and
specially prepared fire charred white oak barrels used in ageing process.

As its demand has increased over a period of time. The production has also increased
which thereby increased the production costs and warehousing cost.

1. In your opinion, what costs should be included in Dobbin`s inventory?

Logically Inventory costs include all the direct costs involved in the production
process till the finished goods (ready for sale). As in this process ageing is an
essential part of the manufacturing process, the cost of barrels and warehousing
should be treated as direct costs otherwise it will affect the Income Statements
for the subsequent years thereby misleading the actual profitability of the
company.

2. Assumption: Charging barrel cost and not other warehousing and ageing cost.
Effect on 1988 Income statement and Balance Sheet
Occupancy Costs: Factory Building(Used for warehousing also)
Rented Building
Warehouse Labour and warehouse supervisor
Depreciation: Warehouse Equipment

All these costs will remain in COGS and Costs of Barrel used during the year at
$63,00 per barrel will be added to (asset) Inventory and hence closing inventory
(Effect in balance Sheet: Closing Inventory value increase) will shoot up and
hence Net Profit Figure(in P&L statement) will also improve upon by the same
amount

3. Assumption: Charging all warehousing and aging costs.Effect on 1988 Financial

statements.
Cost of Barrel used during the year at $63 per barrel
Occupancy Costs: Factory Building(Used for warehousing also)
Rented Building
 Warehouse Labour and warehouse supervisor
Depreciation: Warehouse Equipment and Barrel.

As at the end of four years of aging process, barrels are removed and dumped
into regauging tanks.

All these costs will be added to (asset) Inventory and hence closing inventory
(Effect in balance Sheet: Closing Inventory value increases) will shoot up and
hence Net Profit Figure(in P&L statement) will also improve upon by the same
amount.

4. The higher the profit the stronger of company`s chance to get approved for the
loan/credit by the Bank hence company should adopt the Accounting procedure
as shown in Assumption:3 above i.e charging all direct costs as well as
warehousing and ageing costs to Inventory and hence improving upon the Net
Profit figures to increase company chances for loan approval.

Some of the other dimensions can be :

a) Evaporation : A barrel is originally filled with 50 gallons of new bourbon but

after aging only 35 gallons of aged bourbon is left. But the cost of raw
materials have been incurred in producing 15 gallons of bourbon which has
been lost due to evaporation. So accounting of this cost has to be considered.

b) Adjustment of aging process : If aged bourbon is not up to the standard ,

then each barrel has to be checked for leaks or proliferated barrels and
repairs have to be done.