24. (Grade: 3.0 points-Suggested Time: 3.0 minutes) The manager of Brandon Compa

Question

24. (Grade: 3.0 points-Suggested Time: 3.0 minutes) The manager of Brandon Company is reviewing a process costing report for the current period. As she is reviewing the report the company accountant calls to say that the production manager has overestimated the percentage completion of conversion costs in ending work in process. Which of the following is the result when the error is corrected? a. Cost of ending work in process will decrease and cost of units transferred out b. Cost of ending work in process will increase and cost of units transferred out will c. There will be no change in cost of ending work in process or cost of units d. Cannot be determined from the information provided will increase decrease transferred out

Explanation / Answer

Solution:

If percentage of completion of conversion cost in ending WIP is overestimated, it means that equivalent number of units considered for ending WIP is higher than actual equivalent units, therefore total equivalent units increased and cost assigned to ending WIP is also increased.

In order to correct the situation, equivalent number of unit will be decreased overall and for ending WIP, therefore it will result in decrease in cost of ending WIP and increase in cost of unit transferred out.

Therefore when the error is corrected, cost of ending WIP will decrease and cost of unit transferred out will increase.

Hence option a is the right choice.

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