Sally Supervisor was in a meeting with company executives to discuss the declining profits.

She
learned that sales were up and costs were being met in terms of the budget. No one could
understand why there was a decrease in profits. Without having the actual financial figures, what
are the potential reasons for the decline in profit?

WIthin this scenario there are a number of potential reasons for the decline in profit. This

problem can occur from an overstatement of equivalent units or a miscalculation allocating cost

when using either job process costing or process costing (Mowen, 2010). There are two methods

that are commonly used when costing units; these two methods are the weighted average method

and the first in, first out method. The weighted average method combines costs and equivalent

units of a given period with the given cost and equivalent units from the beginning inventory

(Financial Accountancy, 2015). The first-in, first-out method simply is a inventory method

where the first units produced are the first units sold. Equivalent units are the number of physical

units that are multiplied by an estimated average that a unit within inventory that has been

complete. Within cost accounting there is job costing and process costing. The difference

between the two is that job costing views each job as being unique. Process costing , however,

views all units as being the same and follow through the same production process. Being that

process costing assumes all units being homogenous cost are allocated evenly amongst all the

products produced under the process costing system (Lanen, 2017).

In general, what would be your recommendation(s) and/or what items would you want to look at
in trying to solve this problem?

I believe that the error in arises from a miscalculation within the organization's inventory

method. The two common inventory methods are the weighted-average method and the first-in,

first-out method. When using the weighted average method if equivalent units are overstated
within the ending inventory creates a higher cost to the ending inventory and less cost is

allocated to the goods transferred from the work in process inventory. However, understating the

cost of goods transferred out of WIP would also create an understatement to cost of goods sold

when the units are sold. My recommendation would be to produce a production cost report which

summarizes the production and cost for a period. The production cost report would help the

managers and Sally to view and compare the actual flow of production and cost within the

organization. The items I would advise Sally to view the period cost. The organization could be

over applying period cost to the units which in return is causing their problem. I would have

Sally review how cst are being applied to the units to be sure that the unit cost are faithfully

represented.

James 1:2 reads consider it all joy, my brethren, when you encounter various trials. This

relates to this discussion board because we are told that we should be joyous when facing trials.

Within this case Sally should be joyous, because God has equipped her with the tools t solve the

companies problems. The Lord has blessed us with many gifts to solves various trials and

problems and he rejoices when we use the gifs to solve ur trias in his name; bringing more glory

to his name.
 References

Mowen, M. M. (2010). Management accounting. South Melbourne, Vic.: Cengage Learning.

LANEN, W. N. (2017). FUNDAMENTALS OF COST ACCOUNTING. NEW YORK:

MCGRAW-HILL EDUCATION.

FInancial Accountancy. (2015). Weighted Average Cost (AVCO) Method. Retrieved November
22, 2017, from http://www.financialaccountancy.org/inventory-valuation/weighted-
average-cost-method/