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 production of the whiskey. The raw materials that go into the whiskey making process, including the grain, yeast, and malt, the direct labor to convert the raw to whiskey, and the cost of any overhead items needed in the conversion. Although these items could be considered inventory costs, they should be left in the manufacturing costs because these could be interchangeable with different products and procedures. The topic of interest among the Board of Directors is whether or not the barrels can be considered an inventory cost.

When deciding this step, one has to look at the final whiskey product. For the whiskey to be consumable, it has to be aged for a minimum of 4 years inside these expensive, special oak barrels. This fact allows for the barrel cost to be removed for the cost of goods sold and results in an increase of the net profit from a loss of $895, 000 to a positive profit of $3,471,000, due to the reduction of the $4,366,000 price of the barrels. This amount is moves to the inventory cost and can now be spread over the time the barrels are in use (Datar, 2014).

Conclusion
To insure that the loan request goes through, the financial statement of Anson’s inventory would have to be changed based on the analysis. The barrel costs should be moved to the inventory cost category and thus will decrease the amount in the cost of goods sold resulting in the income statement having a positive net profit. By having a strong net profit and consistent net sales, I see The Justin Anson Distillery, Inc. having no problem getting their loan form Valley National Bank. This will allow the company to continue to expand their production and to capitalize on the anticipated increase in whiskey consumption and to potentially gain a larger share of the whiskey market (Datar, 2014).
Appendix A
Brief 1 Rubric
Total 50 points
Criteria Unacceptable Acceptable Proficient Student Score and Comments
Applies the 5-step critical thinking decision making tool (appendix). Vaguely applies the 5-step critical thinking decision making tool.

(0-3 points) Applies the 5-step critical thinking decision making tool and, for the most part, fulfills assignment requirements.

(4 points) Applies the 5-step critical thinking decision making tool and demonstrates solid ability to accomplish the assignment.
(5 points)
Develops an opening paragraph that introduces the case.

Vaguely develops an opening paragraph that introduces the case or does not have an opening paragraph.

(0-3 points) Develops an opening paragraph that introduces the case and, for the most part, fulfills assignment requirements.

(4 points) Develops an opening paragraph that introduces the case and demonstrates solid ability to accomplish the assignment.
(5 points)
Identifies the manufacturing costs essential to produce bottled whiskey.

Vaguely identifies the manufacturing costs essential to produce bottled whiskey or completely off the topic.

(0-3 points) Identifies the manufacturing costs essential to produce bottled whiskey and, for the most part, fulfills assignment requirements.

(4 points) Identifies the manufacturing costs essential to produce bottled whiskey and demonstrates solid ability to accomplish the assignment.
(5 points)
Discusses the importance of distinguishing inventoriable costs from “Other costs” that are included in the Cost of Goods Sold. Vaguely discusses the importance of distinguishing inventoriable costs from “Other costs” that are included in the Cost of Goods Sold or completely off the topic.

(0-3 points) Discusses the importance of distinguishing inventoriable costs from “Other costs” that are included in the Cost of Goods Sold and, for the most part, fulfills assignment requirements.

(4 points) Discusses the importance of distinguishing inventoriable costs from “Other costs” that are included in the Cost of Goods Sold and demonstrates solid ability to accomplish the assignment.

(5 points)
Discusses the costs that should be included in Anson’s inventory when preparing financial statements.

Vaguely discusses the costs that should be included in Anson’s inventory when preparing financial statements or completely off the topic.

(0-3 points) Discusses the costs that should be included in Anson’s inventory when preparing financial statements and, for the most part, fulfills assignment requirements.

(4 points) Discusses the costs that should be included in Anson’s inventory when preparing financial statements and demonstrates solid ability to accomplish the assignment.

(5 points)
Integrates established accounting principles into the discussion.

Rarely integrates established accounting principles into the discussion.

(0-3 points) For the most part, does a good job of integrating established accounting principles into the discussion.

(4 points) Consistently does a good job of integrating established accounting principles into the discussion.

(5 points)
Synthesizes relevant information and materials to provide evidence of critical thought.

Synthesizes information at a minimal level.

(0-3 points) For the most part, effectively synthesizes information, which supports main ideas.

(4 points) Consistently and effectively synthesizes information, which provides strong support to main ideas.

(5 points)
Develops ideas with clarity and logic.

Demonstrates little clarity and logic. Readers have difficulty following the line of reasoning.

(0-3 points) Develops ideas with clarity and logic. Readers can generally follow the line of reasoning.

(4 points) Develops ideas with clarity and logic. Ideas flow smoothly from one to another and are clearly linked to each other.

(5 points) Uses supporting documentation that has been properly references and cited.

Inadequate or minimal use of supporting documentation or not properly referenced or cited.

(0-3 points) For the most part, uses supporting documentation that is properly referenced and cited.

(4 points) Consistently uses supporting documentation that is properly referenced and cited.

(5 points)
Considered holistically, demonstrates the ability to write at the graduate level.

Considered holistically, the student demonstrates an inadequate ability to write at the graduate level.

(0-3 points) Considered holistically, the student demonstrates an acceptable ability to write at the graduate level.

(4 points) Considered holistically, the student demonstrates a proficient ability to write at the graduate level.

(5 points)
SubTotal Points
Turnitin.com Did not turn paper into Turnitin.com
Minus 10 points
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Revisions based on the originality Report Did not revise paper based on the originality report
Minus 10 points
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Grammarly Did not revise paper based on the recommendations from Grammarly.com.
Minus 10 points
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--- Total Points =

Datar, S. and Rajan, M. (2014). Managerial Accounting. (1st ed.). Boston: Pearson Prentice Hall,
References

Datar, S. and Rajan, M. (2014). Managerial Accounting. (1st Ed.). Boston: Pearson Hall, 71-75
71-75.
Datar, S. and Rajan, M. (2014). Managerial Accounting. (1st ed.). Boston: Pearson Prentice HaRe