Daniel Dobbins Distillery Inc Case Solution

Case Solution

A distiller increases whiskey production and earnings declines because of accounting techniques getting used. Questions are elevated regarding dealing with costs which might be considered production, inventory, or period costs. The needed maturing boosts added queries about prior period restatements and needed financing. A rewritten type of a young case by R.F. Vancil and R.H. Deming.

Excel Calculations

Balance Sheet 1987- 1991

Income Statement  1987- 1991

Same Production and Increased Production

Free Cash Flows ( In thousands)

Present Value of Future Cash Flows

Intrinsic Value of the firm

Questions Covered

1. Is Dobbins using LIFO or FIFO? Which should it use?

2. Please provide a uFCFF and Intrinsic Firm Value for Dobbins:

    a. As if it had not increased production; and

    b. Given its increases in production.

3. In your opinion, what costs should be included in Dobbins's inventory?

4. Assuming Dobbins decided to charge barrel costs (but not other warehousing and aging costs) to inventory, what 1988 income statement and balance sheet items would change, and what would the new amounts be?(Assume no change to in-process inventory)

5. If Dobbins's suggestion of including all warehousing and aging costs in inventory were accepted, how would the 1988 financial statements is affected? (Same assumption as for Question 2)

6. What method of accounting would you recommend that Dobbins use in preparing the annual financial statements to be submitted to Ridgeview National Bank?