Question

What types of expenses are saved when a product ceases to be manufactured? What should be done with existing inventories? Discuss in 80–100 words.

Answer 1

Ans . The fallowing costs are saved

Variable manifacturing cost of product such as DIRECT MATERIAL COST, DIRECT LABOUR, DIRECT EXPENSES and other variable manufacturing over head, selling expenses such as advertising expenses and distribution expenses,selling commission, transportation cost, and carrying cost of inventory such as storage cost , interest on working capital blocked in inventory,ordering cost to order raw material,and cost related to enquiring supplier quotations etc..

2, such existing inventory can be

Sold at net realisable value in open market .or,

Used in another production line as it is input or,

Used in another production after certain modifications as per requirement or,

Store in any other Pvt where house in case manufacturer has an intension to Restart business after sometime