Beer making process

The beer manufacturing process can be summarized in 10 stages. These stages in order are: malting, grinding, grinding, roasting, boiling, fining, fermentation, storage, filtering, packaging (quotes).The brewing process he takes place in seven departments. The end products of the entire process are ales and lagers.

Division 1: Malt

Malting involves sprouting fresh barley to a critical point where the germination process stops and the sprouted barley dries out (beeriety). Germinating barley produces a barley enzyme known as amylase that helps convert starch into sugars. Germinated barley is dried in an oven at a temperature of 1760 F. The barley is henceforth referred to as malt.

Department 2: Milling

Here, the malt is moved to the mill where it is crushed to remove the husk and increase the dissolution of the malt in water (Beeriety). The separated husks are still used in the brewing process being essential in lautering.

Department 3: Mashing & lautering

The milled malt then moves to the third stage, mashing. Mashing is done in a mash tun and involves mixing hot water with the milled malt converting the starch into sugars, a process enabled by the amylase enzyme (Beeriety). The process produces a thick liquid filled with sugars referred to as the wort. The wort is separated from the husks in the lautering stage. At this stage, the main byproducts of the brewing process are realized. The husks and spent grain can be sold as cattle feed or sold to industries that produce fertilizers and biogas.

Department 4: Boiling & clarification

Hops are added to the wort during the boiling process to give beer its bitter aromatic taste. Water added in the mashing process evaporates during boiling concentrating the wort. The flavored wort is fed into a whirlpool for clarification. The whirlpool rotates the wort with excess hops forming a trub in the middle of the container; the clarified wort is removed from the sides and is rapidly cooled down to a temperature that supports fermentation (Beeriety).

Department 5: Fermenting & Storing

Fermentation is done in the fermenting tank. The fermenting process introduces yeast to the wort turning the sugars into alcohol (Flowers). It is at the fermenting stage that the production process splits for ales and lagers (All About Beer Magazine). Ales are fermented at warm temperatures of 58F to 75F using temperature specific yeasts and are ready to drink within 3 weeks (Flowers). Lagers are fermented at cooler temperatures of 50F and below (Flowers). Storage methods differ for ales and lagers. Lagers are stored for a period of 3 weeks to 6 months at temperatures close to the freezing point. The storage stage conditions and matures the already fermented beer.

Department 6: Filtering

The semi-final stage is filtration. Here, any residue is filtered from the beer giving the lager/ale its clear color (Beeriety). The residue or dregs are another byproduct of the process. Once dried, these can be sold as dried yeast to other breweries. The dregs could also be used in the secondary fermentation that occurs in the storage stage within the brewery.

Department 7: Packaging

Finally, the beer is packaged into containers appropriate for the market.

Costs by Department

1. Malting

Direct Materials Cost;

Barley- variable cost, this cost increases with an increase in production. Barley is used only in the malting department. Its cost will however be transferred in to the subsequent departments.

Water- variable cost, the amount of water used is dependent on the level of production/ amount of barley used. If there is no production there will be no water used.

Direct labor- Variable cost, the number of hours worked in this department will increase or decrease with the quantity of production.

Manufacturing Overhead

Electricity- Semi-variable, the electricity charges accrued from operating the kiln will vary depending on the level of production. Nonetheless, the factory has a fixed electricity charge charged even at zero production

2. Milling

Direct labor- Variable cost, similar to the malting department

Manufacturing overhead

Electricity- Semi-variable cost

3. Mashing & lautering

Direct labor- Variable cost

Direct materials

Water- variable cost

Manufacturing overhead

Electricity- Semi-variable cost

4. Boiling & clarification

Direct materials

Water- variable cost

Hops- variable cost

Manufacturing overhead

Electricity- semi-variable cost

Direct labor- Variable cost

5. Fermenting & Storing

Direct materials

Yeast- variable cost

Direct labor- semi-variable cost

Manufacturing overhead

Electricity- semi-variable cost

6. Filtering

Direct labor- semi-variable cost

Manufacturing overhead

Electricity- semi-variable cost

7. Packaging

Direct labor- Variable cost

Direct materials

Bottles- Variable cost

Cans- Variable cost

Bottle tops- Variable cost

Manufacturing overhead

Electricity- Semi-variable cost

Given the nature of production, I would recommend joint costing using a process costing system. The brewery would have two products lines ale and lager. Each product unit in one product line is homogenous making it easy to determine the unit cost of a singular product via the process costing system. To make the costing system less bulky, a joint-costing system would be used. The two product lines would be treated as one in the beginning 4 steps. This mirrors the actual nature of production given that the process of producing ales and lagers is similar up to the fermentation point. Costs transferred to the fermenting and storing departments of the now split product lines would be proportionate to the amount of wort liquid actually transferred to the fermenting department of the product line. There will be hardly any complications since the costs transferred in accurately represent the costs incurred to that particular point. Further manufacturing overhead, direct labor and direct materials costs accrued in the final three departments will be costed to the different product lines as split costs. Since fermentation & storage and filtration take place in different physical rooms for lager and ale the direct materials and labor costs are easily determined. If packaging is done using the same machine, direct labor and direct material costs allocated to each product line will be a similar proportion to the proportion of that product line’s final production to the total production.

GAAP does not provide a strict guideline as to the costing of byproducts. The brewery’s main focus and source of income is the main product, beer.

The main reason for byproduct costing would therefore be to determine the byproduct inventory and the amount of revenue to recognize. I would recommend a cost method of allocating byproducts cost. The system would involve deciding on a standard market value of the byproduct, which can only be revised if there is a large variance in the market price. The market value of the product is then deducted from the total production cost. Any production costs associated with preparing the by-product for sale for example drying the dregs, husks and spent grain are charged directly to the byproducts account. Sale of the byproduct is recorded in the account and after balancing out the byproduct’s production cost and the market value that was deducted from the total production cost. The resultant balance will be reported as other income in the balance sheet.

Works Cited

Beeriety. “How Beer is Made.” 6th July 2009,

http://blog.beeriety.com/2009/07/06/how-beer-is-made/. Accessed 3rd December 2017.

Flowers, Jeff. “Lager vs. Ale: The Differences Between Both Types of Beer.” 7th

September 2016, https://learn.kegerator.com/lager-vs-ale/. Accessed 3rd December 2017.

All About Beer Magazine. “Build Your Beer Knowledge.” Kegerator, November

2002, http://allaboutbeer.com/article/build-your-beer-knowledge/. Accessed 3rd December 2017