Question

Bonivo Inc. manufactures computers from commodity components to client specifications. The company has historically tracked only the cost of components to computers, and computer selling prices or bids, have been based solely on the cost of components plus a markup sufficient to cover the other operating costs. In recent years, the company has encountered increasing price pressure from customers, and as a result, computers have often been sold at less than the full markup price--causing continually decreasing profits for the firm.  

As you have provided other financial services to Bonivo Inc. in the past, company management has asked you for guidance regarding approaches that could be taken to better manage the firm's profits and prices. You decide that a job order costing system could be helpful to Bonivo.  

1. Explain how a job order costing system could help Bonivo better control costs and profits.

2. Explain why Bonivo should not base computer prices only on component costs plus a markup.

Answer 1

Answer:-

Occupation request costing framework :-

Occupation request costing frameworks are utilized for assignment of assembling expenses to groups of items or an individual item .

Starting point of the case :-

• Bonivo Inc. produces PCs as indicated by customer determinations.
• The organization has generally followed just the expense of PC parts , PC moving costs, and other working expenses .
• As of late , PC benefits have begun dropping as PCs have experienced expanding value weight from clients, and this brought about it being regularly sold at not exactly the full markup cost .

1 ) :-

Coming up next are the manners in which work request costing frameworks will be useful for Bonivo Inc. :-

• At present , Bonivo Inc. does not have any information with respect to the genuine expense of building any of the PCs being configured.
• Hence, the organization will come up short recognize the real benefit produced on any business exchange .
• The activity request cost will help organization Bonivo Inc. to comprehend factors which drive costs in the organization .
• The framework will likewise profit the organization to quantify the [profits at a bargain of any exchanges , and decide better systems to deal with the expenses and income .

2 ) :-

Proclamation :-

" Company Bonivo Inc. ought not put together PC costs just with respect to part costs in addition to a markup."

Avocation :-

• The evaluating arrangement that maintains a strategic distance from the expenses of overhead and direct work is defective .
• Just when overhead expenses and direct work costs are relative to the immediate material , the organization will decide the cost and benefit of every PC .
• Therefore , the costs incorporated into this case in all probability from a noteworthy bit of the expense of assembling made-to-arrange - PCs .