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XYZ Company produces products in a mass production environment with 3 departments: Cutting, Assembly and Packaging. The product moves through each of the 3 departments in sequential order. That is, the WIP of the 1 department becomes one of the inputs of the 2 department (i.e department 2's transferred-in cost); the WIP of the 2 department becomes one of the inputs of the 3 department. The product passes through all 3 departments before it is complete.
Required:
Problem 1: Evaluate the accountant's proposed control system. In your answer address the following points:
a) Critically evaluate the strengths and weaknesses of using Profit and Loss statements based on absorption costing to evaluate departmental performance.
b) State whether you agree with the accountant's proposed control system.
c) Regardless of whether you agree or disagree with the accountant's proposed system, explain how you might improve the system and critically evaluate the strengths and weaknesses of your recommended improvement.
The cost of the points would be added to the legal amount of the mortgage
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