Clerly Canadian Beverage Corporation – Inventories Anlysis
Essay title: Clerly Canadian Beverage Corporation – Inventories Anlysis
Clearly Canadian Beverage Corporation
As a manufacturing company, Clearly Canadian Corporation, which produces and markets natural and flavored beverage products is expected to hold three kinds of inventories. These inventories are carried by Clearly Canadian in every phases (input, processing, output) in manufacturing the beverage.
Inventories that are held by this company are raw material inventories, working in process inventories, and finished goods inventories. As we know, Clearly Canadian is a beverage company, the raw materials that are needed to make the beverages are natural water, sugar, artificial coloring, etc.
While after all the raw materials have been collected, the company will face the processing phase, meaning converting the raw material into finished goods, example: mixing the ingredients. This phase is categorized as working in process inventories.
Last but not least, the raw materials that have been processed and ready to be sold in the markets are the finished goods inventories. These are the inventories that Clearly Canadian distributes and sells in United States, Japan, Thailand, Great Britain, etc
Conclusion, Clearly Canadian is holds this three inventories throughout the making and selling it’s beverage.
After we define the Clearly Canadian inventories above, we know that those inventories are very important for Clearly Canadian, therefore they have to manage it properly. To hold an inventory a company is faced with risks, where it may face some losses too. The risks that clearly Canadian has to handle include storage costs, opportunity costs, peripheral costs, and depreciation costs.
For storage costs, the costs in this category are storage charges, storage staff, equipment maintenance, and running costs. Storage charges include rent expense, lighting, heating, refrigeration, air conditioning, etc (Lucey 1988, p.185). The company needs to pay this cost because by holding the inventories it will need storage facilities and supporting staff.
Opportunity costs will arise when the company does not choose the best alternative includes interest on capital invested in the stock (Lucey 1988, p.185). The company could have earned interest from the bank if they did not invest the money on these inventories.
Supporting costs, which are also call peripheral cost, comes together with the storage cost that comes along with the storage costs. Peripheral cost means the cost that additional cost. Examples Audit, stocktaking, insurance, and security costs.
Lastly, depreciation cost is the cost that incurred due to depreciation value of the inventories or maybe damages, which cause invaluable. Those kind of cost are deterioration, obsolescence, pilferage, and vermin damage (Lucey 1988, p.186).
The basic issues in accounting for inventory in Clearly Canadian include Just-In-Time manufacturing and purchase, and Economic Order Quantity. These two issues can affect the production budget and the financial statement of Clearly Canadian.
Just-In-Time purchase and manufacturing is the method to minimize the cost of materials held in the raw material inventory by only holding inventories as much as the needed quantity for the production process. This method associates with good supply chain distribution, and precise production budget.
Economic order quantity is basically the method to prevent the company from losing orders due to insufficient inventory. With EOQ, the company can reach efficiency in purchasing the materials and storing it, while maintaining a buffer zone to anticipate additional offers at unpredictable times.
Therefore, Clearly Canadian should regard these methods, EOQ and J-I-T. The two methods can be applied in sync to reach the most efficient inventory level to reduce the overall cost of production, which is the main aim of cost accounting.
The new regulation requires clearly Canadian beverage to put its nutrition information in a more detailed manner on its label. This new regulation will make a significant affect. These significant affect is in the changes of the consumer buying habits. Beside that the changes regulation also influences the company spending and increase the production cost, because by adding a new label there must be an additional cost for designing and producing it.
By adding the complete label it will affect to an increase of the customer awareness and nutrition issues and it could have future impacts in buying habits. The consumer will more selective in choosing the products and