Assume that you are a manufacturing accounting consultant. Your current client,
ID: 2554641 • Letter: A
Question
Assume that you are a manufacturing accounting consultant. Your current client, Hot Stuff Bonfire, Inc., manufactures custom-order outdoor fire pits. You have learned that Hot Stuff is not satisfied with it's periodic inventory system because it does not provide timely inventory costing information. You plan to recommend that Hot Stuff convert to a cost accounting system. As part of your preparation for the presentation you are to prepare notes on the following:
1. Why a cost accounting system is appropriate for Hot Stuff Bonfire, Inc.
2. A description of the documents that will be included in the cost accounting system.
3. How the documents in part 2 facilitate the operation of the cost accounting system.
Explanation / Answer
1. Estimation of the accurate cost of products is critical for profitable operations. A firm must know which products are profitable and which ones are not, and this can be ascertained only when it has estimated the correct cost of the product. Further, a product costing system helps in estimating the closing value of materials inventory, work-in-progress and finished goods inventory for the purpose of financial statement preparation.
In the given problem Hot Stuff Bonfire, Inc is not having the Cost Accounting System hence the dont know the cost of the product hence it is appropriate for them to incorporate Cost Accounting System.
2. Deccrition of Documents-
a. Invoices for purchase of Materials.
b. Invoices for Inward Supplies of Services.
c. Invoices for expense incurred
d. etc.