Question 11.OA.1: The production of spirits and whiskies conjures up images of...
Burn Stewart Distillers Ltd.
The production of spirits and whiskies conjures up images of the master brewer and age-old recipes. However, the global business environment has brought changes to this image and introduced the need for sophisticated planning and control systems to supplement mystery and tradition. Burn Stewart Distillers Limited, based in East Kilbride, Scotland, operates three distilleries: Deanston in Perthshire, Bunnahabhain on the Isle of Islay, and Tobermory on the Isle of Mull. It sells several million liters of cased and bulk whisky each year in the UK and export markets. Burn Stewart utilizes an integrated planning and costing system to manage its inventories and optimize the efficiency of its distilling processes. The system provides the firm with up-to-date information to ensure that it achieves consistent output. While consistency is important, cost also is critical, especially in the blended whisky market where Burn Stewart must compete for the price conscious consumer who prefers low cost and supermarket convenience. The planning system allows the management team to monitor the cost of its blended products from the beginning to the end of the distilling process. For example, the firm might opt to purchase whisky from another producer rather than draw down its own inventory when a cost advantage exists. Burn Stewart’s master blender creates a recipe for each blend. The standard cost of the blend is determined from this standard ‘bill of materials.’ Costs are calculated in real time, providing management information to make informed decisions about markets and prices. If the standard cost of the blend is deemed to be too high relative to market demand, the blender can use this information to alter the recipe to reduce costs without affecting product quality. What factors caused Burn Stewart to adopt its integrated planning and control system? How does the firm’s use of standard costing enable it to meet customer preferences and also to maximize organizational value?
