Daniel Dobbins Distillery Shikhar Jaiswal

WMP13050

Date: 20th Jan, 2018

Issues & notes identified in class in Daniel Dobbins Case:

1. Ageing Cost

There are two kinds of cost, one is Period Cost and other is Product Cost.

Cost accounting makes it possible for profit-planning.

Product Cost: Cost of items which become integral part of the product. Eg. In this case, can you sell
without ageing, bottling etc.? No, so this is product cost. This goes to inventory.

Period Cost: Costs which are fixed for a particular period. Example: minimum rent, electricity etc. This
goes to PnL statement.

2. Loss in 1988 – due to which bank will not sanction loan

Loss is divided into 2 parts, avoidable and unavoidable.

In case some loss is unavoidable I tis normal loss. If the loss is avoidable, then it is normal loss. Since it
cannot be prevented it is borne by the production.

In case something can be avoided, it is called abnormal loss. This would go to PnL statement.

3. Disagreement

What is considered ageing cost in this case? Production cost can be considered complete at any stage.
Eg. sell 1 year old distilled whisky, etc. to other distillery at lower cost if you do not have storage capacity.

4. Capitalization

In cost accounting, there is nothing called as capitalization.

5. Company is producing only one product

This makes a lot of things simpler in this case.

6. Barrels – kind of machine

Asset is a resource which is helps in production. So, barrels are identified as asset. But the management
of the company is not doing it. In the Analysis of this case we have made barrel cost as product cost
instead of product cost.

4th year of production onward entire cost of the barrel would be accounted for.
 7. Interest
8. Linking between cost accounting and financial accounting

This part will come in Analysis

9. Profit planning

This part will come in Analysis, where profit can be shown depending upon what we consider as
production cost.

Definitions:

Cased Goods: They are those which have been otherwise completed and just need to be sold.

ANALYSIS

We assume: Production process is complete once the whisky is put into the barrels.

Cost of barrels: $63.00

Sale of used barrels has not been shown anywhere, it should have been there.
Until now ageing cost is taken as period cost.

Taking barrel cost as production cost.

=> $63 + $52.4 = $115.4

COGS has gone up by $2,709,000

From PnL statement the period cost of barrels needs to be removed, as , cost would go down =
-3,969,000

Net reduction in cost: 1,260,000

Earlier reported profit = -814,000

After cost reduction profit = +446,000