Question

Question: General Mills needs a steady supply of ingredients for processing. What are some risks the company faces regarding its ingredients?

Short answer

The business entity will face the risk of scarcity and degraded raw materials.

Step-by-step solution

Definition of Process Costing

The costing method used by the business entity to allocate operational costs to the goods produced in mass is known as process costing. It is used by the business entity whose product passes through different processes.

Process risk

Process risk can be defined as the loss arising because of an ineffective and inefficient process. If the process is ineffective, then the business entity is not able to achieve its objective. If the process is inefficient, the business is able to achieve the objective but at a higher cost.

Risk that the company faces regarding its ingredients

1. Insufficient raw material: The business entity will face the risk of insufficient raw material because of water scarcity and climatic changes that affect the agricultural raw material.
2. Degraded raw material: The business entity might not get the standard quality of the raw material because of water scarcity and climatic changes. It will affect the goodwill of the business entity; using such raw materials in production will affect the quality of the product.