A company produces rubber hose using Discreet orders accounts for raw material scrap after report as finished through inventory movement journals.
The company has noticed that most of the scrap that is recorded is due to start up that feeds the hose to the finishing process.
In addition, the amount of scrap that is recorded is consistent regardless of the amount of hose being produced.
You need to account for material cost during startup.
What should you do?
Click on the arrows to vote for the correct answer
A. B. C. D.B.
The issue in the scenario is that the company is recording scrap material during startup that feeds the hose to the finishing process, and this amount is consistent regardless of the amount of hose being produced. This indicates that the scrap material is not related to the actual production quantity, but rather to the startup process.
To account for the material cost during startup, we need to identify the type of scrap material and determine whether it is constant or variable. Constant scrap is the scrap material that is generated in a consistent amount and is not dependent on the production quantity. Variable scrap, on the other hand, is the scrap material that varies based on the production quantity.
Option A suggests doing a case study to determine the average amount of scrap and then entering it as a separate line item on the Bill of Materials (BOM). This approach assumes that the scrap material is a constant amount, but it may not be accurate if the scrap material varies with startup conditions.
Option B suggests entering the amount of scrap that is consumed as constant scrap in the BOM. This option is appropriate if the scrap material is a constant amount, but it may not be accurate if the scrap material varies with startup conditions.
Option C suggests entering the amount of scrap that is consumed as variable scrap in the BOM. This option is appropriate if the scrap material varies based on the production quantity, but it may not be accurate if the scrap material is a constant amount.
Option D suggests entering the consumption amount on the line to match the actual amount used. This option is appropriate if the scrap material is a variable amount and can be accurately measured during startup.
In summary, to account for material cost during startup, we need to determine the type of scrap material (constant or variable) and then choose the appropriate option to account for it in the BOM. If the scrap material is a constant amount, options B or A may be appropriate. If the scrap material is a variable amount, options D or C may be appropriate.