Management

Assignment: Answer the questions below as they relate to the Dobbins case. Also, complete Tabs #2 and #3 of the Income Statement spreadsheet that will be loaded for you on Blackboard. Tab #2 should be completed to show the income statement and inventory levels assuming Dobbins treated the cost of the wooden aging barrels as a Product Cost and has always done so (this will help you to answer Question #3 below). Tab #3 should be completed to show the income statement and inventory levels assuming Dobbins treated the cost of the wooden aging barrels and the cost of warehouse labor both as Product Costs and has always done so (this ties in with Question #4 below). For purposes of the spreadsheet, do not account for any other warehousing or aging costs (such as rent or depreciation) as Product Costs even if you feel that they belong there.

Please double space you answers and submit it to me through email no later than 5pm on Monday, February 8, 2016. I suspect your papers will be approximately 3 pages long but use as many pages as you need to effectively and efficiently answer the questions. Please submit your spreadsheet with the assignment.

Questions

1. Please give a brief summary of the issue facing management in this case.

2. In your opinion, what costs should be included in Dobbin’s inventory and why?

3. Assuming Dobbins decided to charge the cost of wooden aging barrels (but not other warehousing and aging costs) to inventory, what 1988 income statement items would change? What asset amounts on the balance sheet would change and what would the new amount(s) be? Assume that this change was made five years ago – i.e. this was the policy for all prior years.

4. Assuming Dobbins decided to charge the cost of wooden aging barrels and warehouse labor costs (but not other warehousing and aging costs) to inventory, what 1988 income statement items would change? What asset amounts on the balance sheet would change and what would the new amount(s) be? Assume that this change was made five years ago – i.e. this was the policy for all prior years.

5. What overall recommendations would you make to Dobbins management about its reporting and what sources, if any, would you consult in analyzing this problem?

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