Question

Read the following scenario and then thoughtfully discuss the questions.

Maredo Leather Company manufactures top quality leather used by Roe and Adler, LLC in their manufacture of airplane seat covers. The production manager at Maredo has been under pressure from the company president to reduce the cost of conversion. In spite of several attempts to reduce conversion costs, they have remained more or less constant. Now the manager is faced with an upcoming meeting with the company president, where he will have to explain his failure to reduce conversion costs. The manager goes to the company controller with the following request. He explains that he is under pressure to reduce cost in the production process, but there is no way to reduce material costs.   He explains that if he can just show a little progress in his meeting with the president then he can buy some time to try some other cost-saving measures.   He asks the controller to raise the estimate of the percentage of completion of the ending inventory for the month to 60 percent. This will increase the number of equivalent units and the unit conversion cost will be a little lower. Use the following to answer the questions below:

October 1 Work-in-Process 400 units

Conversion 25% complete

Inventory costs as of Oct 1:

Leather	$990
Dye	260
Conversion costs	300
Total	$1,550

During October 7,600 leather fabric pieces were placed into production. A total of 7,000 leather fabric pieces were completed. The work-in-process inventory on October 31 consisted of 1,000 leather fabric pieces with were 50 percent complete as to conversion. The costs charged to production during October were:

Leather	$19,990
Dye	5,250
Conversion costs	20,700
Total	$45,850

What should the controller do?

Answer 1

Controller should not do this manipulation because it is unethical and against the moral code of conduct. This practice is used for internal reporting purpose so there is no legal liability for misconduct but the main object of managerial accounting is to assist in decision making by providing true state of affairs. So this artificial reduction in unit conversion costs will be against the ethics of managerial accounting standards.

Book1 Microsoft Excel Home Insert Page LayoutFormulas DataReviewView Developer cut E AutoSum 11 A Av =-= wrap Text General 噛Copy Paste B 1 LI-ER-1 Or-ㄥˊ 회 Merge & Center. s-% , to8f8 Conditional For mat Cell- Insert Delete Format F = Sort &Find & Format Painter I U 2 Clear Filter Select Editing Formatting as Table Styles Clipboard Alignment Cells (33 Beginning 400 25% 300 Work in Process Equiant units in the current period Units accounted for Units in beginning work in proces Add: started during the year Total units accounted for Complted and transferred Units in ending WIP 1400 x (1-25%) 7,600 8,000 10 ,IXD 13 14 15 Calculation of Equivalent units for conversion Total Conversion cost 300 6,600 500 7400 300 Add: Cost added during the period 20,700 Total Conversion cost: 21000 Beginning Conversion arted and completed Ending WIP units Total Equivalent units |(1000 x 50%) 17 18 19 Cost per equivalent units for conversion: $2.84 (21,000/7,400) Calculation of Equivalent units for conversion if ending units % raised to 60 Beginning WIP units tarted and completec Ending WIP units Total Equivalent units 300 6,600 21 23 24 25 26 7500 Cost per equivalent units for conversion Unit conversion costs will be lower by $0.04 (2.84-2.80) Activate Windows 4 ト | Sheet1 | Sheet2. Sheet3 Ready Q 쎄愉トイ) ENG 10/26/2017 2:22 PM