an error was made by ROC Company in computing the percentage of completion of th
ID: 2444189 • Letter: A
Question
an error was made by ROC Company in computing the percentage of completion of the current year's ending WIP Inventory. The error resulted in the assignment of a lower percentage of completion to each component of the inventory than actually was the case. There was no beginning WIP Inventory. What is the effect of this error on (1) cost assigned to cost of goods completed for the period and (2) the computation of costs per equivalent unit?a. Understated Overstated
b. Overstated Understated
c. are both Overstated
Explanation / Answer
Answer is a) The lower completion, means less inventory (in terms of WIP) is on hand, which means the related COGS entry is also understated. Because there are less units being recorded than there actually is, when calculating costs/unit, this makes the denominator smaller, and hence overall cost/per unit larger/overstated
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