Discussion

The Trappist monks of St. Sixtus monastery in Belgium have been  brewing beer since 1839. Customers must make an appointment with the  monastery to buy a maximum of two 24-bottle cases per month. The scarce  and highly prized beer sells for more than $15 per 11-ounce bottle. The  monastery has not expanded its production capacity since 1946, seeking  instead to sell just enough beer to sustain the monks’ modest  lifestyle.

There are two conventional costing approaches in manufacturing: job  order and process. These methods have similarities and differences. Both  systems have the same basic purposes—to assign material, labor, and  manufacturing overhead costs to goods and services and to provide a  mechanism for computing unit product costs. Both systems use the same  basic manufacturing accounts, including manufacturing overhead (indirect  cost), raw materials (direct cost), labor (direct costs), work in  process, and finished goods. Once the goods and or services are  complete, the costs of producing these goods and services are recorded  under the “cost of goods sold” (COGS).

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As you may know, the COGS is a  line item within a company’s income statement. From an accounting  perspective, it useful to match the COGS to the revenues generated from  the sale of units sold. The difference between the sales revenue and the  COGS equals the gross profit. Process costing is used when a company  produces a continuous flow of units that are indistinguishable from one  another. Job-order costing is used when a company produces many  different jobs that have unique production requirements (custom orders).  As you can imagine, companies that use the job order costing  methodology tend to experience higher production costs, since their  company is producing multiple goods or services or different variations  of the same goods or services (hybrids). Conversely, companies that are  using process costing, tend to have lower production costs, since they  produce a single good or service.

Source:

Garrison, R., Noreen, E., & Brewer, P. (2014). Managerial accounting (15th ed.).   Columbus, OH: McGraw-Hill Education.

Initial Question

The St. Sixtus monastery last expanded its’ production capacity in  1946; however, due to an increase in the cost of maintaining their  modest lifestyle and expanding demand for specialty brews, they are now  considering four (4) business options: maintain the status quo, same  product and same production capacity; expand existing production  capacity and maintain the existing product; create custom micro-brews,  but maintain the same product capacity, and create custom micro-brews,  and expand existing production capacity. The monks are aware that there  is a growing demand for specialty beers, but don’t know if this the  correct direction they should take their enterprise. Realizing that they  need outside assistance to examine their opportunities, they have hired  the student, who is functioning as an external consultant. The student  (consultant) will be expected to prepare a formal recommendation as to  which business options makes the most sense for St. Sixtus monastery. In  preparing this recommendation for the client, the students will need to  consider the current and future demand, production cost implications,  the costing approach, sales revenue, and any other relevant information  given the different business scenarios (options). Ensure that your  recommendation is well supported, properly vetted, and logically  presented. It is important that management carefully consider any  potential ethical implications associated with their stated position. If  there are any potential ethical concerns associated with your position,  they should be identified and discussed.