That\'s correct and that\'s also why inventory and COGS are valued keeping in mi
ID: 2380748 • Letter: T
Question
That's correct and that's also why inventory and COGS are valued keeping in mind the GAAP principles . Explain any one accounting principle that is relevant for inventory . Give an example of its application by researching any company's annual report (you will find a note on inventory in the notes to financial statements). That's correct and that's also why inventory and COGS are valued keeping in mind the GAAP principles . Explain any one accounting principle that is relevant for inventory . Give an example of its application by researching any company's annual report (you will find a note on inventory in the notes to financial statements). That's correct and that's also why inventory and COGS are valued keeping in mind the GAAP principles . Explain any one accounting principle that is relevant for inventory . Give an example of its application by researching any company's annual report (you will find a note on inventory in the notes to financial statements).Explanation / Answer
Standard cost accounting uses ratios called efficiencies that compare the labour and materials actually used to produce a good with those that the same goods would have required under "standard" conditions. As long as actual and standard conditions are similar, few problems arise. Unfortunately, standard cost accounting methods developed about 100 years ago, when labor comprised the most important cost in manufactured goods. Standard methods continue to emphasize labor efficiency even though that resource now constitutes a (very) small part of cost in most cases.
Standard cost accounting can hurt managers, workers, and firms in several ways. For example, a policy decision to increase inventory can harm a manufacturing manager's performance evaluation. Increasing inventory requires increased production, which means that processes must operate at higher rates. When (not if) something goes wrong, the process takes longer and uses more than the standard labor time. The manager appears responsible for the excess, even though s/he has no control over the production requirement or the problem.
In adverse economic times, firms use the same efficiencies to downsize, rightsize, or otherwise reduce their labor force. Workers laid off under those circumstances have even less control over excess inventory and cost efficiencies than their managers.
Many financial and cost accountants have agreed for many years on the desirability of replacing standard cost accounting. They have not, however, found a successor.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.