Question

Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50 percent. The following information is available for physical units during March. Work in process, March 1 (70% complete as to conversion costs) Units started in March Units transferred to Finishing Department in March Work in process, March 31 (30% complete as to conversion costs) 161,000 622,000 652,000 131,000 Required: a. Compute the equivalent units for materials costs and for conversion costs using the weighted average method. b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method. c. The company president has been under considerable pressure to increase income. He tells the controller to change the estimated completion for ending work in process to 70 percent (from 30 percent). C-1. What effect will this change have on the unit costs of units transferred to finished goods in March? c-2. Would this be ethical? C-3. Is this likely to be a successful strategy for affecting income over a long period of time? Complete this question by entering your answers in the tabs below. Req A Req B Reg C1 Req C2 Reg C3 Compute the equivalent units for materials costs and for conversion costs using the weighted average method. Equivalent Units Materials Conversion costs

Answer 1

Requirement A

	Equivalent units
Material	652,000
Conversion	691,300

.

Requirement B

	Equivalent Units of Production
Material	491,000
Conversion	578,600

Requirement C-1-----------Unit cost will decrease

Requirement C-2-----------No its not ethical

Requirement C-3------------No

Working

STEP 1 (FIFO)
Reconciliation of Units
	Units	% already completed		% completed this period
		Material	Conversion	Material	Conversion
Beginning WIP	161,000	100%	70%	0%	30%
Units introduced	622,000
Total units to be accounted for	783,000
Completed and Transferred unit	652,000	0%	0%	100%	100%
Ending WIP	131,000	0%	0%	0%	30%

.

STEP 2 (FIFO)
Equivalent Units
	Total Units	Material		Conversion
Units Transferred:		% completed this period	Equivalent Units	% completed this period	Equivalent Units
From WIP	161,000	0%	-	30%	48,300
From units started/Introduced	491,000	100%	491,000	100%	491,000
Total	652,000		491,000		539,300
	Total Units	Material		Conversion
Ending WIP		% completed this period	Equivalent Units	% completed this period	Equivalent Units
Total	131,000	0%	-	30%	39,300
Total EUP	783,000		491,000		578,600

..

Statement of Equivalent Units(Weighted average)
				Material		Conversion
	Units			Complete %	Equivalent units	Complete %	Equivalent units
Transferred out	652,000			100%	652,000	100%	652,000
Ending WIP	131,000			0%	-	30%	39,300
Total	783,000			Total	652,000	Total	691,300

.

Answer 2

A) conversion cost 652,000+ 131,000*30%= 691,300 

material 652,000+ 131,000* 0%= 652,000

B) material 161,000*(100%-100%)+ (652,000-161,000)+ 131,000* 0%= 491,000

conversion cost: 161,000*(100%-70%)+ (652,000-161,000)+ 131,000* 30%=

578,600