NIST’s security Incident Response Life Cycle (IRLC).

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1.

Why is costing information (for example, the calculation of WIP inventory valuation) important to financial reporting?

Research and discuss at least one point through the discussion

 

2.

In this week, we discussed the firm’s perspective on security incident handling and introduced NIST’s security Incident Response Life Cycle (IRLC). (Prepare – Discover & Analysis – Containment, Eradication & Recovery – Post-Incident Activities)

 

Have you or people around you ever experienced a security breach? Using the IRLC and share your experience.

 

How prepared were you before the incident? (prior training? knowledge? controls?)

How was the incident discovered and analyzed?

How did you contain, eradicate and recover from the incident?

Any post-incident activities were performed? What did you learn from the incident?

Share your experience and evaluate your “cybersecurity incident handling” using the CMM General model, how mature was your incident handling capability? briefly explain why.

 

 

Sample Solution

Costing information is important to financial reporting because it is used to calculate the value of inventory, which is a major asset on the balance sheet. Inventory is valued at its cost or net realizable value, whichever is lower. Costing information is also used to calculate the cost of goods sold, which is an expense on the income statement.

One point that can be discussed through this discussion is the importance of costing information in ensuring the accuracy and reliability of financial statements. Financial statements are used by a variety of stakeholders, including investors, creditors, and management, to make informed decisions. If costing information is inaccurate, it can lead to inaccurate financial statements, which can mislead stakeholders.

For example, if work-in-process (WIP) inventory is valued incorrectly, it can lead to an overstatement or understatement of assets and expenses on the balance sheet and income statement, respectively. This can make it difficult for investors to assess the financial health of a company and for creditors to assess the company’s ability to repay its debts. Additionally, inaccurate costing information can lead to poor decision-making by management.

Another point that can be discussed is the role of costing information in helping companies to improve their profitability. By understanding the costs associated with producing and selling their products or services, companies can identify areas where they can reduce costs or improve efficiency. This can lead to higher profits.

For example, a company that manufactures widgets can use costing information to identify the costs associated with each step of the production process. The company can then look for ways to reduce these costs, such as by negotiating better prices with suppliers or by improving the efficiency of its production process. By reducing costs, the company can increase its profits.

Overall, costing information is important to financial reporting because it is used to calculate the value of inventory, which is a major asset on the balance sheet, and to calculate the cost of goods sold, which is an expense on the income statement. Costing information is also important for ensuring the accuracy and reliability of financial statements and for helping companies to improve their profitability.

Discussion

One of the key challenges in costing inventory is the allocation of overhead costs. Overhead costs are costs that cannot be directly traced to a specific product or service. Examples of overhead costs include rent, utilities, and salaries.

There are a number of different methods that can be used to allocate overhead costs to inventory. One common method is to use a predetermined overhead rate. This rate is calculated by dividing the estimated total overhead costs for a period of time by the estimated total production for that period of time.

For example, a company that manufactures widgets may estimate that its total overhead costs for the year will be $1,000,000 and that it will produce 100,000 widgets during the year. The company’s predetermined overhead rate would be $10 per widget.

The company would then use this rate to allocate overhead costs to its inventory. For example, if the company has 10,000 widgets in inventory at the end of the month, the company would allocate $100,000 in overhead costs to its inventory.

Another challenge in costing inventory is the valuation of WIP inventory. WIP inventory is inventory that is still in the process of being produced. WIP inventory can be difficult to value because its cost is not yet complete.

There are a number of different methods that can be used to value WIP inventory. One common method is to value WIP inventory at its cost to complete. This method involves estimating the costs that will be incurred to complete the WIP inventory and then adding those costs to the costs that have already been incurred.

For example, a company that manufactures widgets may estimate that it will cost $5 to complete each widget that is in WIP inventory. The company would then value its WIP inventory at $5 per widget.

Another method that can be used to value WIP inventory is the weighted average method. This method involves assigning a weighted average cost to each unit of WIP inventory. The weighted average cost is calculated by dividing the total cost of WIP inventory by the total number of units of WIP inventory.

For example, a company that manufactures widgets may have 10,000 widgets in WIP inventory. The company may have incurred $100,000 in costs to produce these widgets. The company would then assign a weighted average cost of $10 per widget to its WIP inventory.

The choice of costing method will depend on a number of factors, including the type of industry, the company’s production process, and the company’s management objectives.

 

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