ezto.mheducation.com/hm.tpx?--0.519430804982098-152 1255561688 Gary Stevens and

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ezto.mheducation.com/hm.tpx?--0.519430804982098-152 1255561688 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 10% 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 $34,430 of making the year's target profits. All we have to do is pull a few strings, and we'll be over the top! 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 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 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 Mary: Gary: process inventories. During the year 330,000 units were transferred in from the prior processing department and 313,000 units were completed and sold Costs transferred in from the prior department totaled $84150.000. No materials are added in the final processing department. A total of $23.952.375 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 25% complete with respect to the conversion costs of the final processing department. if this estimate of the percentage completion is used what would be the Cost of Goods Sold for the year? (Round your cost per unit to 2 decimal places.) goods Does Gary Steviens went the sstipnated percentage comptetion to be increased or d mpletion to be increased or decreased? Type here to search

Explanation / Answer

1 Transferred in (material) Conversion Units completed and sold 313000 313000 Ending Work in process: (330000-313000=17000) 17000*100% 17000 17000*25% 4250 Equivalent units of production 330000 317250 Cost of beginning work in process 0 0 add: Added during the period 84150000 23952375 Total Cost (A) 84150000 23952375 Equivalent units of production (B) 330000 317250 Cost per equivalent unit A/B 255 75.5 Cost of Goods Sold 103446500 (313000*(255+75.5) 2 Harry wants % of completion to be increased, since higher the % completion means higher equivalent unit production and hence lower cost 3 To increse net income, we have to reduce cost of goods sold by $34430 COGS at 25% completion 103446500 Less: Increase in Net Income 34430 New COGS 103412070 Unit Cost (New COGS/313000) 330.39 Transferred in (material) Conversion Units completed and sold 313000 313000 Ending Work in process: (330000-313000=17000) 17000*100% 17000 17000*x (Assume % completion as x) 17000x Equivalent units of production 330000 313000+17000x Cost of beginning work in process 0 0 add: Added during the period 84150000 23952375 Total Cost (A) 84150000 23952375 Equivalent units of production (B) 330000 313000+17000x Cost per equivalent unit A/B 255 23952375/(313000+17000x) Unit Cost=255+23952375/(313000+17000x) Unit cost is 330.39 as calcualted above 330.39=255+23952375/(313000+17000x) 330.39-255=23952375/(313000+17000x) 75.39 (313000+17000x)=23952375/75.39 317712.89 (313000+17000x)=317713 17000x=317713-313000 0.277235294 x=0.2772 or 27.72% % Completion to be 27.72% for increasing income

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