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Management Planning and Control

Case Name: Daniel Dobbins Distillery Student Name: Hechuan Lou (Serena) Date: 10-10-2015

1. Please give a brief summary of the issue facing management in this case.
Daniel Dobbins Distillery Inc. Was planning to request a loan request for $3 million from National Bank of Nashville, Tennessee and they need to submit their 1988 financial statements. The issue is how they make the report to the bank about the loss of $814,000. Is the barrel costs and warehouse labor should charge to inventory? 2. In your opinion, what costs should be included in Dobbin’s inventory and why?
In my opinion,the cost of barrels and warehousing should be included in Dobbin’s inventory. Because the maturing or aging process also belong to the part of manufacturing process. The whiskey was not ready for sale until it was aged and therefore the aging barrel needed to be included in product cost. As inventory costs include all the direct costs involved in the production process till the finished goods. 3. Assuming Dobbins decided to charge barrel costs (but not other warehousing and aging costs) to inventory, what 1988 income statement items would change? What asset amounts on the balance sheet would change and what would the new amount(s) be? Assume that this change was made five years ago – i.e. this was the policy for all prior years.
The subtotals of cost of product charged to sales will increase, the total of other costs charge to COGS will decrease. Because the barrel costs was included in inventory as they belong to the part of manufacturing process, it should be considered as a product cost.
The amount of the inventory asset will increase, the new amount would be $

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