# How should the company treat the costs associated with normal and abnormal spoilage? Explain whether these costs need to be accounted for.

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Maximum 1000 words (+/-10%) for the entire uploaded document

Once you have read the case, you should complete the requirements below.

For Part A, insert your answers in the Excel spreadsheet.Once you have completed the Tables in Excel, you will need to embed them into your word document. You must paste the Excel tables as a “¬picture” to avoid any words in the spreadsheet counting as part of the 1000-word limit. (This will require you to select “picture” when pasting in the word document not “keep source formatting”).

1) Using the information provided in the case study, prepare a cost of production report of both the CF and Bottling departments under the weighted average and the FIFO method. Note that the company currently ignores spoilage. In the Excel worksheet provided, you will find 4 sheets to help you complete this assessment requirement. What is the cost per bottle under each method? (Total 92 marks)

2) Myka would like to maintain a 50% gross profit to cover AVS’s administrative expenses of US\$125,000 and target a 15% net profit. What should the target cost per bottle be in order to achieve these goals? You are required to:

a) Calculate the target cost per case using the weighted average and FIFO method. In the Excel Worksheet, you will find a 5th sheet to help you complete your calculation.

(Total16 marks)

b) Based on PART A 2a) explain if the current production report (Weighted Average) helps the company achieve the target cost per bottle? Should Myka recommend the company change its methods to FIFO? Explain your answer.

(7 marks)

PART B – Write your answer in MS Word. [Total 29 MARKS]

Myka is concerned about the spoilage. She has asked you to help her understand what is considered normal and abnormal spoilage in the winemaking process. You are required to write a memo to Myka explaining the company spoilage. In that memo, you should address the following questions:

a) Discuss why a company should measure the cost of spoilage. (7 marks)

b) How should the company treat the costs associated with normal and abnormal spoilage? Explain whether these costs need to be accounted for. (7 marks)

c) What is a possible reason for managers to state that all spoilage is normal? (7 marks)

d) Identify 3 pieces of additional information that you need from the department managers of the CF and Bottling departments to confirm that there is no abnormal spoilage and that all spoilage is normal. (2 marks each; total 6 marks)

e) If you fail to get information from the CF and Bottling managers, list one other piece of information could you use to help understand the level of spoilage. (2 marks)

PART C – Reflection (Individual submission) [14 MARKS]

A successful accounting professional uses the idea of self-reflection to improve their skills in the workplace. Reflecting on your experience of completing this assignment, you will write a self-reflection that discusses your learning experiences.

You should follow the guidelines provided in QUT cite/write on Reflective Writing:

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Approximately 250 words