Costs to Be Included in Inventory When Creating the Financial Statement

To: Craig Anson

From:

Subject: Costs to be included in Inventory when creating the Financial Statement

October 11, 2015

Business Brief

The Justin Anson Distillery, Inc. is a bourbon whiskey distilling company that was established in 1935 and quickly expanded into a million dollar company by 1960. Justin Anson attributes their success to the whiskey being produced with distinctive iron-free spring water and then being aged in fire-charred white oak barrels. As of 2012, the company is in the process of expanding its production in anticipation of a higher forecasted consumption of whiskey from 2011-2019. This entailed ramping up production by 1 ½ time the 2011 production numbers and the need to apply for a $3.3 million loan to continue the expansion endeavor. The only problem with this jump is that whiskey must age for at least 4 year according to regulations. This growth comes with a cost that as of right now is showing that the company had a net loss of $895,000 for the 2012 production year even though they brought in a net sales of $46 million. This visual loss could be detrimental to the company receiving the loan from the bank (Datar, 2014).

The biggest problem that the distillery is facing is that they will not be able to continue expansion without procuring a loan. The company needs to find a lawful and truthful way to realign their costs for the year to reflect their initial expansion with the use of more barrels as inventory costs to bring the company up to once again having a net profit instead of a net loss. The company has to decide if just the use of the barrels can be marked as an inventoriable cost or should the company mark all production, aging and storing costs as inventory costs.

Analysis

The issue the company is having is that their current financial statement is not correctly categorizing their costs and products used based on their expansion. With this, the company needs to look into what is actually going into the...