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How to Answer Cost Account Questions – College Edition (Part Two)

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THIS IS A CONTINUATION FROM PART ONE FOUND HERE

For example, A hardware store sells household items for home improvement which will include items that are iron-based such as building materials, hand tools, power tools, plumbing supplies, electrical supplies, housewares e.t.c. Rust will be one of the main reasons for the loss of supplies.

RESPONSE FOR QUESTION TWO

An abnormal loss is the opposite of normal loss. Therefore abnormal loss is an unanticipated loss Abnormal loss arises because of carelessness, lack of proper knowledge, machine breakdown, etc. Abnormal losses are controllable and are usually investigated to prevent their occurrence in the future. Therefore, an abnormal loss is also called an avoidable loss. These losses are segregated from process costs.

Carelessness is described as the failure to give sufficient attention during a behaviour which can result in errors being made or harm being caused to oneself, others and the damaging of equipment as well as unnecessary costs to the company. For example, boxes in a warehouse toppling onto an employee, resulting in a head injury because a fellow co-worker did not follow correct procedures in storing the boxes. The company will then have to compensate the injured employee by paying for all medical costs of this employee as well as loss of wages during the that period. The company might also have to find a replacement, depending on the nature of the job which again can be costly to the company.

The lack of proper knowledge means an employee has a lack of experience or was not given proper training to carry out his/her job effectively. It is the responsibility of an employer to provide adequate training to their employees, especially for jobs that can be potentially dangerous. For example, a factory worker cuts off a finger while cutting wood with a fixed saw because he was not trained on the proper way to use it. In this case, the employer should be found liable.

Machine breakdown is the failure of a machine to function. These situations are always costly to a company especially if the machine that breaks downplays an integral role in overall production. This means an entire production process can be put on pause because of it. The company stands to lose a lot especially if the matter takes time to be addressed. Machine breakdowns could be caused by factors such as Poor maintenance, untrained personnel’s operating machinery, overrunning machine’s capabilities, and ignoring warning signals. Oftentimes, machine breakdowns could have been prevented. For example, Phillips Drinks Company has a deadline to meet during the Christmas holidays. Although the cap machine was showing evidence of being worn, the issue was ignored and extra pressure was being put on it as it’s time for the operation now almost doubled. Half-way through the job, the machine just stopped working. It would now take a whole week to be repaired.

RESPONSE FOR QUESTION THREE

The reason for the difference of valuation between normal loss and abnormal loss is that normal loss was anticipated, therefore provisions are made for these losses before the start of production while abnormal losses are unforeseeable, therefore would not have been planned for.

 

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