7. Please check and fill the box where answers needed thanks. Gary Stevens and M

Question

7. Please check and fill the box where answers needed thanks.

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 S70,470 of making the year's target profits. All we have to do is pull a few strings, and we'll be over the top! What do you mean? Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories Idon'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: Mary: Gary: process inventories. During the year, 290,000 units were transferred in from the prior processing department and 261,000 units were completed and sold. Costs transferred in from the prior department totaled $76,270,000. No materials are added in the final processing department. A total of $19,099,400 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.) t of goods sold 2. Does Gary Stevens want the estimated percentage completion to be increased or decreased? Increased Decreased 3. What percentage completion would result in increasing reported net operating income by $70,470 over the net operating income that would be reported if the 25% figure were used? (Do not round your cost per unit calculations. Round your intermediate calculations to the nearest dollar amount and final answer to the nearest whole percent.) rcentage completion

Explanation / Answer

1.

Out of 290,000 units, 261,000 units are completed and sold. Rest of the 31,000 units are 25% complete with respect to conversion cost. Therefore, total equivalent units with respect to conversion cost is:

Equivalent units = 261,000 + 29,000 x 25% = 268250 units

Conversion cost per equivalent units = 19099400/268250 = $ 71.20 per unit

Material cost per unit = $ 263

Total cost per equivalent unit = $ 71.20 + $ 263 = $ 334.20 per unit

Cost of goods sold = no. of units sold x cost per unit = 261000 x $ 334.20 = $ 87,226,200 /-

2.

They will want to increase the estimated percentage completion because this will lead to increase in COGS and decrease in net profit.

3.

For increasing net income by $ 70470 we have to decrease the total conversion cost per unit by $ 70470. As per 25% completion approach, per unit conversion cost is $71.20. 261,000 units are being sold, therefore we need to decrease conversion cost $3.70 per unit.

New conversion cost per unit = $ 71.20 - $ 3.70 = $ 67.50

Conversion cost per unit = Total conversion cost/no. of equivalent units

$ 67.50 = 19099400/ no. of equivalent units

no. of equivalent units = 282954

No. of equivalent units = competed units + uncompleted units x % completion

282954= 261,000 +29,000 x % completion

                % completion = 75.70%

Related Questions

Navigate

• Browse (All)
• Browse 7
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.