Golden Company Uses One Raw Material, Gold Ore, for All

question 35

Essay

Golden Company uses one raw material, gold ore, for all its products.It spends considerable time getting the gold from the ore before it starts the actual processing of the finished products, rings, lockets, etc.Traditionally, the company made one product at a time and charged the product with all costs of production, from ore to final inspection.However, in recent months the cost accounting reports have been somewhat disturbing to management.It seems that some of the finished products are costing more than they should, even to the point of approaching their retail value.It has been noted by the accounting manager that this problem began when the company started buying ore from different parts of the world, some of which requires difficult extraction methods.Required:
Can you explain how the company might change its accounting system to better reflect the reporting problems? Are there other problems with the purchasing area?

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Definitions:

Magnuson-Moss Warranty Act

A federal law in the United States that governs warranties on consumer products to ensure protection and rights for consumers.

Full Warranty

A comprehensive guarantee that a manufacturer or seller makes regarding the condition of its product, including a promise to repair or replace defective items.

Consumer Goods

Products that are purchased by individuals for personal or household use, rather than by businesses or for industrial purposes.

Oral Express Warranties

Verbal promises made by a seller to a buyer about the nature or quality of the product being sold.