Strawberry Company Case Study

The company is facing a serious dilemma since it wants to acquire a bank loan and it has to prove that it has been operating profitably. One of the most serious issues that the company is facing is on how to allocate the various costs. One of the disputed costs is he costs of inventory where the members cannot agree on the aging costs and other costs. It is very imperative for the company to adopt best measures of recognizing the stock costs. I would take inventory costs as all the costs associated with the production of the final product as stock costs. The former refers to all the costs that a company incurs during the conversion of the materials to the final product. The costs that should be included as stock costs include some of the …show more content…
If Daniel Dobbins Distillery decided to take such a decision, the company cost of goods could rise significantly. The company will have a higher cost of sales than before. However, the increase in the cost of sales due to an addition of the barrel cots will not have any impact on the total profit. It will only reduce the cost of expenses accounted as other expenses. The same will also have an impact on the balance sheet. The value of the inventory asset will increase significantly. The company inventory assets will be high. The new values for the inventory assets would increase to $ 22,156,800.00. The cost of sales will also increase from 3301 to 7270 …show more content…
All the relevant costs must be allocated to the cost of inventory if the company wants to remain compliant with the GAPP principles. In the above case, I would advise the company to allocate the costs related to inventory in compliance with the GAPP. I will advise the company to include the cost of inventory storage as part of the inventory cost. If such costs are included as part of the inventory, the cost of sales will increase, and the net profit will also increase. The company should also consider recognizing the barrel costs as part of the inventory costs so that the cost of inventory can increase. Recognizing the warehousing costs and the barrel costs would also have a positive impact on the balance sheet balances. The value of inventory asset would increase, and a strong balance sheet will help the company in securing a loan. In addition, the company should also follow the industrial practices that exist in the whisky industry. They can choose to use such industrial practices every year when preparing financial statements. Finally, the company should consult accounting firms. Through this, they will get the best advice on how to treat some of the accounting