Compass Box Whiskey

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Compass Box Whisky Company case 1. The costs in Exhibit 3b: Warehousing Business: Warehousing is required in order to store the whisky through its maturation and aging stage. The costs related from the warehousing operations are directly related to the operational costs of the business as an integral part of the product manufacturing phase. Accounting: Since the warehousing of the product is a required part of the manufacturing process (ie. To get the inventory to a usable condition) all warehousing costs should be capitilised as part of inventory. Essentially the warehousing stage is the Work-in-Progress stage of the whisky making process. It is assumed that direct labour, utilities, insurance, and warehouse depreciation costs relating to the warehouse are included in these figures. Financing Business: The manufacturing of whisky requires certain equipment and inventory to firstly distill the alcohol and then to allow the alcohol to age in oak barrels. Due to the long lead time between the commencement of the product manufacture and generating a saleable product it is understandable that financing plays an integral role in funding the purchase of property, plant and equipment that is required to complete the whisky making process. Accounting: Whilst financing activities are likely to be required due to the long work-in-progress stage of the process it is not necessarily essential. Financing should therefore be treated as a financing cost rather than an operational cost and should not be capitilised as part of inventory. Evaporation Business: Evaporation is an integral part of the maturation process and is unavoidable. Unfortunately for the business it means that the end volumes of the product are reduced and therefore erode the potential revenues. However the rate of evaporation is constant and predictable and should simply be
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