Question 1 Discuss the Treatment of Normal and Abnormal Spoilage under Job Costi

Question

Question 1

Discuss the Treatment of Normal and Abnormal Spoilage under Job Costing.

Question 2

Why are Business Managers using the Cost-Volume-Profit Analysis? Critically explain the

   advantages and Disadvantages of using Cost-Volume-Profit Analysis.

Question 3

What is a Job Costing system? How Does Job Costing information affect Managers

   incentives and Decisions.

Question 4: Critical Thinking

Abdullah completed a cost-volume-profit analysis for Al Tawfiq Company for the next

   year. Abdullah notes the decrease in volumes and prepares the breakeven analysis and

   computes the margin of safety; he notes that the margin of safety will be positive for the

   period. However, the company will not achieve the sales volume required to achieve its

   desired level of operating and net income. The degree of operating leverage is high. You

   has been tasked with suggesting some cost savings.

   Instructions

Identify whether you should reduce variable or fixed costs.

What will be the impact on the company in the future?

What suggestion you will give to company for cost savings.

Explanation / Answer

3)Job costing is an accounting method used to assign product costs to custom products or services. In job costing, direct costs are traced and overhead costs are allocated to individual jobs. Sometimes defects occur in custom products. Defective units can sometimes be reworked. The costs for both spoilage and rework need to be accounted for, as does the cost of scrap that arises from production.These cost expenditures impacts managers in deciding incentives for the staff.

1)Normal spoilage is expected under the best of circumstances. The cost is included in cost of manufacturing, and it’s part of job costing. On the other hand, abnormal spoilage produces more defects than you would expect from normal production. Those costs are posted to a loss account. Abnormal costs aren’t part of the cost of manufacturing or completing a customer job. They are a loss to take.

2)Cost-volume-profit analysis is a tool that can be utilized by business managers to make better business decisions.Cost benefit analysis, also referred to as “benefit cost analysis,” is a method of evaluation that estimates the value of projects to determine whether those projects are worth undertaking or continuing. At its most basic, cost benefit analysis, CBA, could be a calculation that continuing production of a product or product option is no longer viable. At its most complex, CBA can be used to take into account the benefits the company receives as well as the benefits that accrue to the community at large.

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