Question

Note: In case you are not familiar with Boston Beer Company, here is their business description: The Boston Beer Company, Inc. and certain subsidiaries (the “Company”) are engaged in the business of selling alcohol beverages throughout the United States and in selected international markets, under the trade names “The Boston Beer Company,” “Twisted Tea Brewing Company,” “Angry Orchard Cider Company,” “Hard Seltzer Beverage Company,” Traveler Beer Co.®, the Angel City Brewing Company®, the Concrete Beach Brewery® and the Coney Island® Brewing Company. This is Boston Beer’s income statement. It is similar to Exhibit 2-14 on page 35 of our text. THE BOSTON BEER COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands, except per share data) Year Ended December 30, December 31, December 26, 2017 2016 (53 weeks) 2015 Revenue $ 921,736 $ 968,994 $ 1,024,040 Less excise taxes 58,744 62,548 64,106 Net revenue 862,992 906,446 959,934 Cost of goods sold 413,091 446,776 458,317 Gross profit 449,901 459,670 501,617 Operating expenses: Advertising, promotional and selling expenses 258,649 244,213 273,629 General and administrative expenses 73,126 78,033 71,556 Impairment (gain on sale) of assets, net 2,451 (235) 258 Total operating expenses 334,226 322,011 345,443 Operating income 115,675 137,659 156,174 Other income (expense), net: Interest income 549 168 56 Other expense, net (82) (706) (1,220) Total other income (expense), net 467 (538) (1,164) Income before provision for income tax 116,142 137,121 155,010 Provision for income taxes 17,093 49,772 56,596 Net income $ 99,049 $ 87,349 $ 98,414 This is the inventory footnote from Boston Beer’s audited financial statement: Inventories and Provision for Excess or Expired Inventory Inventories consist of raw materials, work in process and finished goods. Raw materials, which principally consist of hops, malt, apple juice, other brewing materials and packaging, are stated at the lower of cost (first-in, first-out basis) or net realizable value. The Company’s goal is to maintain on-hand a supply of approximately two years for essential hop varieties, in order to limit the risk of an unexpected reduction in supply. Inventories are generally classified as current assets. The Company classifies hops inventory in excess of two years of forecasted usage in other long-term assets. The cost elements of work in process and finished goods inventory consist of raw materials, direct labor and manufacturing overhead. Packaging design costs are expensed as incurred. The Company enters into multi-year purchase commitments in order to secure adequate supply of ingredients and packaging, to brew and package its products. Inventory on hand and under purchase commitments totaled approximately $170.3 million at December 30, 2017. The provisions for excess or expired inventory are based on management’s estimates of forecasted usage of inventories on hand and under contract. Forecasting usage involves significant judgments regarding future demand for the Company’s various existing products and products under development as well as the potency and shelf-life of various ingredients. A significant change in the timing or level of demand for certain products as compared to forecasted amounts may result in recording additional provisions for excess or expired inventory in the future. Provisions for excess inventory are included in cost of goods sold and have historically been adequate to provide for losses on its inventory. Provision for excess or expired inventory included in cost of goods sold was $5.8 million, $4.5 million, and $4.0 million in fiscal years 2017, 2016, and 2015, respectively. Inventories consisted of the following: December 30, 2017 December 31, 2016 (in thousands) Current inventory: Raw materials $ 33,086 $ 35,314 Work in process 6,826 8,131 Finished goods 10,739 9,054 Total current inventory 50,651 52,499 Long term inventory 9,905 6,316 Total inventory $ 60,556 $ 58,815.

Questions

1. The Boston Beer inventory footnote lists the three classifications of inventory that we studied: Raw Materials, Work in Process and Finished Goods. List the five items that are included in Raw Materials inventory for Boston Beer. (5 points)

A.

B.

C.

D.

E.

2. In your own words, describe what would be included in work-in-process for Boston Beer. (5 points)

3. In your own words, describe what would be included in finished goods for Boston Beer (5 points)

4. Inventory is typically shown as a current asset on the balance sheet. Boston Beer includes some of its inventory in long-term assets. Why? (6 points)

5. In Chapter 2 we learned about three types of businesses. Based upon what you have learned, is Boston Beer a Service, Merchandising, or Manufacturing firm? Explain, using two complete sentences that make sense. (5 points)

6. The schedule below looks similar to Exhibit 2-13 on page 35 of our text. The computation is described at the bottom of page 34. Using the information from footnote for the inventory balances (use “total inventory” amounts), and the income statement for the amount of cost of goods sold, compute the amount of Cost of goods manufactured. The inventory balance for December 31, 2016 will be the beginning balances and the inventory balance for December 31, 2017 will be the ending balance. (12 points)

The Boston Beer Company
Summary of Cost of Goods Sold
for the year ended December 31, 2017
Cost of goods manufactured
Add: Beginning finished goods inventory
Cost of goods available for sale
Less: Ending finished goods inventory
Cost of goods sold

7. The schedule below is similar to Exhibit 2-12 on page 34 of our text (starting with the first yellowed line). Using the cost of goods manufactured amount you computed in #2 and the inventory balances for work in process from Boston Beer’s footnote, compute Total manufacturing costs for the year. (12 points)

The Boston Beer Company
Schedule of Cost of Goods Manufactured
for the year ended December 31, 2017
Total manufacturing costs for the year
Add: Beginning work in process inventory
Total cost of work in process during the year
Less: Ending work in process inventory
Cost of goods manufactured

Answer 1

1. five items that are included in Raw Materials inventory for Boston Beer are:

hops, malt, apple juice, other brewing materials and packaging

2. the following would be included in work-in-process for Boston Beer:

a) raw materials as mentioned above

b) direct labout costs (upto the percentage of work done)

c) mfg overhead costs (upto the percentage of work done)

3. the following would be included in finished goods for Boston Beer:

a) raw materials as mentioned above

b) direct labout costs

c) mfg overhead costs

4. Because of the fact that the Company has hops inventory which is in excess of two years of forecasted usage - therefore it classifies the same in other long-term assets.

5. Boston beer is a manufacturing firm. As, making beer is a process which takes substantial period of time and it changes its form from raw materials to a liquid finished product.

6. all figures not available for computation