The managing director of a company manufacturing and selling a range of goods has been looking through
Question:
The managing director of a company manufacturing and selling a range of goods has been looking through the previous period's accounts and has noted that the cost of direct materials purchased, expressed as a percentage of sales, is higher than the budgeted material cost of sales, expressed as a percentage of sales. He concludes from this comparison that the company has been wasting or losing significant amounts of material.
Required:
(a) Provide four reasons why the managing director's conclusions regarding material waste/losses could be incorrect. (6 marks)
(b) Assuming that the managing director is correct, identify three points where material waste/losses could have occurred, and for each point you have identified, outline a control procedure which could assist in reducing the material waste or losses.
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