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 (60% complete as to conversion costs)	150,000
Units started in March	600,000
Units transferred to Finishing Department in March	630,000
Work in process, March 31 (40% complete as to conversion costs)	120,000

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 60 percent (from 40 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?

Answer 1

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AS FOR GIVEN DATA...

a. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method.

	Physical unit	%	EUP-material	%	EUP-Conversion cost
Unit transferred out	630000	100%	630000	100%	630000
Ending work in process	120000	0%	0	40%	48000
Total	750000		630000		678000

b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

	Physical unit	%	EUP-material	%	EUP-convesion cost
Beginning work in process	150000	0%	0	40%	60000
Units started & completed	480000	100%	480000	100%	480000
Ending work in process	120000	0%	0	40%	48000
Total	750000		480000		588000

I HOPE YOU UNDERSTAND...

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