How to Value Companies like Netflix?
Netflix is one of the largest providers of content in the world. This is amazing given the fact that content is free on the internet. People can go to websites like YouTube and entertain themselves for free. Netflix has built its business in such a hostile market. The customer base seems to be very loyal, […]
Valuation of Sports Franchises: Discount Rate Calculation
In the previous article, we have already seen how the valuation of a sporting franchise can be found using the income approach. This approach relies extensively on finding out the cash flow that is likely to accrue to the sporting franchise and then discounting it at a predetermined discount rate in order to find out […]
Floatation Costs and Investment Banking
Whenever companies need to raise money by accessing the public markets, they have to use the services of investment banks. This is because investment bankers have a readymade network which they use to sell securities to the general public. Investment banks are the central character for a company if it needs to go public. It […]
What is a Financial Market
A market is a place where two parties are involved in transaction of goods and services in exchange of money. The two parties involved are: Buyer Seller In a market the buyer and seller comes on a common platform, where buyer purchases goods and services from the seller in exchange of money. What is a […]
Zero Based Budgeting System Using Envelopes
Budgeting is the start of all financial planning. Till a person is not able to take full control of their most powerful wealth-building tool i.e. their income, they will not be able to obtain personal wealth. There are many different budgeting systems which are available in the market. There are also some mobile applications that […]
Rework is that part of the final produce which has not been accepted by the client because it does not meet the required specifications. However, those specifications can be met by working on the item once again. Hence the name rework.
Spoilage is also that part of the final produce that does not adhere to the specifications given by the client and is therefore not accepted by them.
The difference between rework and spoilage is that, rework will be reworked on and sold at full price whereas spoilage is considered to be defective goods and is discarded at throw away prices in the market.
Rework and spoilage are closely linked concepts. If firms have a high percentage of rework, they will also have a lot of items in their spoilage.
Rework and spoilage are additional cost for the company. Since the company is in the business to make a profit, this gets passed on to the customer in the form of additional costs. This makes the company uncompetitive in comparison to its competitors.
The company with the lowest amount of rework and spoilage costs will have the least loss and hence they will be able to provide the best deal to the customer. Reducing rework and spoilage is therefore strategic in nature and must be paid careful attention to.
Job costing has created a system wherein rework and spoilage costs are allocated to the respective job where the loss is supposed to have occurred. This helps the company find out the types of jobs it is efficient and not efficient in and therefore work on reducing costs:
Your email address will not be published. Required fields are marked *
