ACCTS05-Managerial Accounting Case Study 2 Chapter 4- Process Costing Team Assig

Question

ACCTS05-Managerial Accounting Case Study 2 Chapter 4- Process Costing Team Assignment (2-3 Team members recommended) CASE 4-20 Ethics and the Manager, Understanding the Impact of Percentage Completion on Profit-Weighted-Average Method [Course Objective B] Gary Stevens and Mary James are production managers in the Consumer Electronics Division of General Electronics Company, which has several dozen plants scattered in locations throughout the world. Mary manages the plant located in Des Moines, lowa, while Gary manages the plant in El Segundo, California. Production managers are paid a salary and get an additional bonus equal to 5% of their base salary if the entire division meets or exceeds its target profits for the year. The bonus is determined in March after the company's annual report has been prepared and issued to stockholders Shortly after the beginning of the New Year, Mary received a phone call from Gary that went like this: Gary: How's it going, Mary? Mary: Fine, Gary. How's it going with you? Gary: Great! I just got the preliminary profit figures for the division for last year and we are within $200,000 of making the year's target profits. All we have to do is pull a few strings, and we'll be over the topl Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. Mary: I don't know if I can do that, Gary. Those percentage completion figures are supplied by Tom Winthrop, my lead supervisor, who I have always trusted to provide us with good estimates Besides, I have already sent the percentage completion figures to corporate headquarters. Gary: You can always tell them there was a mistake. Think about it, Mary. All of us managers are doing as much as we can to pull this bonus out of the hat. You may not want the bonus check, but the rest of us sure could use it. The final processing department in Mary's production facility began the year with no work in process inventories. During the year, 210,000 units were transferred in from the prior processing department and 200,000 units were completed and sold. Costs transferred in from the prior department totaled $39,375,000. No materials are added in the final processing department. A total of $20,807,500 of conversion cost was incurred in the final processing department during the year. Required: 1. Tom Winthrop estimated that the units in ending inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this

Explanation / Answer

Weighted Average Method: Equivalent Units of Production : Materials Conversion Units transferred to the next department 200000 200000 Ending work in process inventory: Materials 10000 Conversion 3000 Equivalent Units of Production : 210000 203000 Costs per Equivalent Unit: Materials Conversion Total Cost of beginning WIP inventory 2000000 2000000 4000000 Costs added during the period 3937500 20807500 24745000 Total Cost 5937500 22807500 28745000 Equivalent units of production 210000 203000 Cost per equivalent unit 28.27380952 112.3522167 Cost of ending WIP inventory and Units transferred out: Materials Conversion Total Ending WIP inventory: Equivalent units 10000 3000 Cost per eq. unit 28.27380952 112.3522167 Cost of ending WIP inventory 282738.0952 337056.6502 619794.7455 Units completed and transferred out: Equivalent units 200000 200000 Cost per eq. unit 28.27380952 112.3522167 Cost of units transferred out 5654761.905 22470443.35 28125205.25 Cost Reconciliation : Amount $ Costs to be accounted for: Cost of beginning WIP inventory 4000000 Costs added to production during the period 24745000 Total cost to be accounted for 28745000 Costs accounted for as follows: Cost of ending WIP inventory 619794.7455 Cost of Units transferred out 28125205.25 Total Cost accounted for 28745000

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