Reviewing the statements for both 2011 and 2012, it is obvious that the company incurred a lotof costs from production, inventory and period costs that stem from the long 4 year maturationperiod of Whiskey manufacturing. Revenues in turn were affected because of the loss. Thesemanufacturing costs included, costs of raw materials ( grains, water) direct and indirect laborcosts, factory costs (depreciation or rent), factory equipment, factory utilities, costs of Oakbarrels for the aging, cost of warehousing the whiskey (until the aging process is complete), thisincludes the cost of renting the warehouse. The 30% reduction in volume due to the leakage andevaporation during the aging stage coupled with the barrel cost at of $69.30 per gallon for eachbarrel resulted in the 30,100 of re-gauged whiskey sale instead 43,000 barrels of originalproduction. That alone is a huge part of inventoriable costs that led to a loss of net income of$682 million(12,900 barrels loss). If the cost was included as part of the inventory cost in 2012,instead COGS, it was mostly likely that they would have made a profit. It is therefore importantto distinguish inventoriable costs from “Other costs” included in COGS on the income statementbecause inventoriable costs are capitalized into inventory and then expensed as the good are sold.While “other costs” should be treated as periods costs expressed directly (Biddle, Ma & Song2013).Besides that, investors, potential creditors such Valley National Bank, customers andemployees alike may have a negative image of the financial status of the company if these costsare not properly allocated and designated on the financial statement ( Bridle, Ma & Song, 2013)
Q3:
The issue the company is having is that their current financial statement is not correctly categorizingtheir costs and products used based on their expansion.With this, the company