Busy Hands Craft Company Is a Small Manufacturing Company That

question 97

Essay

Busy Hands Craft Company is a small manufacturing company that specializes in arts and crafts items. It recently bought an old textile mill that it has refurbished to manufacture and dye special cloth to be sold in its craft shops. However, it discovered something new for its accounting system. The company never before had finished goods that did not meet standard, leftover materials from processing runs, or unacceptable outputs.
Required:
As the business consultant for the company, explain how it can handle the items mentioned. Include any potential problems with the accounting procedures.

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Definitions:

Unit Product Cost

The total expense incurred to produce, store, and sell one unit of a product, including direct materials, direct labor, and manufacturing overhead.

Variable Costing

An accounting method in which costs that vary directly with the level of production output are charged to product units.

Net Operating Income

The total profit of a company after operating expenses but before subtracting interest and taxes.

Direct Labor Cost

The cost associated with the work of employees who are directly involved in the manufacturing of products.