Aaron Company has a process costing system. All materials are introduced when co

Question

Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50 percent. The following information is available for physical units during March.

Required

Compute the equivalent units for materials costs and for conversion costs using the weighted-average method.

Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

The company president has been under considerable pressure to increase income. He tells the controller to change the estimated completion for ending work in process to 60 percent (from 40 percent).

What effect will this change have on the unit costs of units transferred to finished goods in March?

Would this be ethical?

Is this likely to be a successful strategy for affecting income over a long period of time?

Work in process, March 1 (60% complete as to conversion costs) 150,000 Units started in March 600,000 Units transferred to Finishing Department in March 630,000 Work in process, March 31 (40% complete as to conversion costs) 120,000

Explanation / Answer

Weighted Average Method Particulars Direct Materials %completion Equivalent mat Conversion %completion Equivalent Conv Opening WIP               150,000.00 100%              150,000.00     150,000.00 100%          150,000.00 Units started and completed = 630,000 - 150,000               480,000.00 100%              480,000.00     480,000.00 100%          480,000.00 ending WIP               120,000.00 0%                               -       120,000.00 40%            48,000.00 Equivalent Units              630,000.00          678,000.00 FIFO Method Particulars Direct Materials %completion Equivalent mat Conversion %completion Equivalent Conv Opening WIP               150,000.00 0%                               -       150,000.00 40%            60,000.00 Units started and completed = 630,000 - 150,000               480,000.00 100%              480,000.00     480,000.00 100%          480,000.00 ending WIP               120,000.00 0%                               -       120,000.00 40%            48,000.00 Equivalent Units              480,000.00          588,000.00 Changing ending work in process to 60 percent would reduce per unit cost as no of equivalent units will increase This is unethical as we are manipulating the data to reduce costs and show better performance No this is not successful as during next period they have to show heir % completion as 40% so cost per unit willincrease

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