Description
Purpose of Assignment
The materials covered this week distinguish between the different costing methods and provides needed tools for decision making. This case study focuses on determining equivalent units in a production business setting.
Assignment Steps
Resources: Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Committee (SEC)
Tutorial help on Excel® and Word functions can be found on the Microsoft® Office website. There are also additional tutorials via the web offering support for Office products.
Scenario: Davis Skaros has recently been promoted to production manager. He has just started to receive various managerial reports, including the production cost report you prepared. It showed his department had 2,000 equivalent units in ending inventory. His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you credited him with only 2,000 units when he knows he had at least twice that many on hand.
Prepare a maximum 700-word informal memo and explain to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory. Using a professional tone, explain to him clearly why your report is accurate.
Format the assignment consistent with APA guidelines.
Explanation & Answer
Attached.
Running head: INFORMAL MEMO
1
Informal Memo
Name
University Details
Date of Submission
INFORMAL MEMO
2
Informal Memo
To: Production Manager,
From: Accounting Department
Date :
Subject: Inventory Management
It is with great concern that I regret the misunderstanding that happened within your
department. Apparently, the root cause of the misunderstanding that occurred in your department
can be attributed to the fact that ending inventory quantity could be calculated in two ways,
depending on expected use of information.
In order to understand the causes of the dispute arising from the production unit, it is
essential to have a critical overview of the importance of inventory management. Apparently,
proper inventory management calls for adequate planning of purchasing, handling, storing as
well as an accounting of inventory within the inventory system. Noteworthy to mention, an
efficient inventory management system will determine what the system needs to purchase, how
much inventory to purchase, from whom to purchase inventory, where to store the inventory,
appropriate ways to store it, among other considerations.
In a typical organization, conflicting interests of departmental heads often occur as far as
the organizational inventory is concerned. In majority instances, the finance manager often
believes in investing less on inventory since the manager believes that inventory is an idle
investment. However, the production manager often believes in investing in more inventories so
INFORMAL MEMO
3
as to avoid any unnecessary interruption during production as a result of a shortage of necessary
materials. In this way, the two departments often conflict with each other.
Important to note, the primary purpose of inventory management is to make sure that the
amount of stock within a company is neither overstocked nor under stocked. If overstocking
occurs, then it is possible that a reduction in liquidity of other relevant production processes will
occur. On the other hand, if under stocking occurs, then it is possible that work processes might
be stopped after the stocks ...
Review
Review
