TO:
FROM: Team 3
DATE: September 03, 2014
SUBJECT: Justin Anson Distillery, Inc. Case

Business Brief

Justin Anson Inc., a company operating in the alcoholic beverage industry, has managed to double sales revenues in the last 10 years selling high-quality whiskey. In 2012, the anticipation of increased demand was supported with an increase in production by 50%. Even though the revenues remained at the same level ($46,200 million), the company ended the year with a net loss of $895,000. Hence, it is obvious that the problem stems from costs.

Analysis

The Income Statement for 2012 results in a net loss due to the mistreatment of inventorial and period costs. The costs for manufacturing bourbon whiskey, that requires a 4-year-period of maturing before being ready for the market, burden current revenues. These costs (the cost of bottling, labor and supplies expense of chemical laboratory, cost of barrels used, warehouse labor and warehouse supervisor) are inventorial costs that increase the inventory amount (assets) in the Balance Sheet, and they are going to match revenues at the time they get sold, as part of Cost of goods sold in the relevant Income Statement. In the case the manufacturing costs for bottled whiskey are not considered in the Income Statement for 2012, the net loss changes into a net income of $682 million (Exhibit 1).

Costs of goods sold cannot increase dramatically in case revenues constantly held. In that case, a company that has been profitable for years and is now making a good investment based on a serious market analysis can end up with a loss. It affects the company`s financial health and image in the eyes of the customers, creditors, investors, suppliers, employees and all the stakeholders. Consequently, the right allocation of costs is essential for preparing statements with relevant information that users can understand