Cases in Cost Management 3rd Edition by John Shank

Exercise 8

Calculate the effect on the financial statements in Exhibits 1 and 2 if the accounting system were changed to incorporate the cost of barrels ($31.50 each) into the inventory accounts.
a. What would pretax profit be in 1961
b. If the change were made retroactively as of July 1,1959 (by adding the cost of barrels to all whiskey in inventory), what would be the effect on
1. The balance sheet at the end of 1960
2. The balance sheet at the end of 1961
3. The operating statement for 1960
The calculations required for question 1 are not massive (it takes more thinking than pencil-pushing). Working those calculations will help solidify your understanding of the relationship between inventory and cost of good sold in a manufacturing company. You'll know you're on the right track if you conclude that the answer to part b(3) is "no effect."