Question

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, Iowa, 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 $48, 150 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. Mary: 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. Gary: 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.

Answer 1

1.
Cost of Goods Sold = $94,951,800 i.e. Cost of units transferred, since all units are sold

	Physical units	Transferred in	Conversion
Units to account for
Work in Process Beginning	0
Started during the period	367000
Total units to account for	367000
Units Accounted for
Completed and transferred	321000	321000	321000
Work in Process Ending	46000	46000	11500
Total Units Accounted for	367000
Equivalent units		367000	332500
	Material	Conversion	Total
Cost of Beginning Work in Process	$                   -	$                   -	$                      -
Cost added during the period	$ 84,410,000	$ 21,878,500	$   106,288,500
Total Cost to account for	$ 84,410,000	$ 21,878,500	$   106,288,500
Equivalent units of Production	367000	332500
Cost per equivalent unit	$          230.00	$            65.80	$             295.80
	Material	Conversion	Total
Units Completed and transferred out
Units transferred to next department	321000	321000
Cost per equivalent unit	$          230.00	$            65.80
Cost of units transferred out	$ 73,830,000	$ 21,121,800	$     94,951,800
	Material	Conversion	Total
Ending work in Process Inventory
Equivalent units of Production	46000	11500
Cost per equivalent unit	$          230.00	$            65.80
Cost of Ending work in Process Inventory	$ 10,580,000	$       756,700	$     11,336,700
Total Costs Accounted for	$ 84,410,000	$ 21,878,500	$   106,288,500

2.
Estimated completion percentage to increase, so that per unit cost decreases and cost of units sold decreases, thereby higher profits and higher bonus

3.
Conversion Cost in ending inventory = $756700
Each percentage in ending inventory costs = $756700/ 25 = $30268

Increase in Completion Percentage = $48150 / 30268 = 1.59%
Percentage Completion = 26.59%

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