Question

1. Sock makers like Stance typically use several different processes, including knitting, design imprinting, washing and drying, inspection, packaging/shipping. What are some benefits of using separate processes cost summary reports for each process?

2. Jeff tries to order raw materials just-in-time for their use in production. How does holding raw materials inventories increase costs? If the items are not used in production, how can they impact profits? Explain fully.

3. How can companies like Stance use yield to improve their production processes?

4. Can you think of a service company process that might use process costing? What similarities might it have with a manufacturing company like Stance? What differences might it have?

Answer 1

1:- process costing is used when identical units were produced in batches employing a consistent process Each process can be assigned a particular budget within which they need to operate and in this way costs incurred for each process can be identified and controlled. Through the process costing system, a company will ensure that every department, regardless of function, operates in a uniform manner.This will help in creating uniformity among the organization.it gives the management better understanding of cost and help them in decision making.it also evaluates efficiencies of process and identify inefficient areas of production.

2:- There are a number of cost and expenses a company incurrs due to holding inventory like Holding cost / Carrying cost i.e. cost for storage, handling, insurance, disposal etc if raw materials are remain unused or unsold then it will be kept in warehouse/stores .for holding raw materials there are holding cost. inventory has significant financial impact on an organisation.from the standpoint of financial accounting, inventory represent both an asset on the balance sheet and a cost that impact the profitability of any firm.if items are manufacturing item and are not used in production,it will be recorded as closing inventory and will include holding cost related to these items.As a Result closing inventory will reflect higher value. A higher value of closing inventory results higher profit in financial statements.

3:- use resources more effectively by focusing on the areas that will have the biggest impact on productivity. Ensure processes are under control. Higher yield rates will reduce the manufacturing cost of the product therefore having positive impact on gross profit and thereby increasing the overall profitability of the company.