Please show your work in answers. Gary Stevens and Mary James are production man
ID: 2601500 • Letter: P
Question
Please show your work in answers. 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, lowa, 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? MaryFine, 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 $132,240 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. The final processing department in Mary's production facility began the year with no work in process inventories During the year, 370,000 units were transferred in from the prior processing department and 348,000 units were completed and sold. Costs transferred in from the prior department totaled $93,980,000. No materials are added in the final processing department. A total of $23,118,900 of conversion cost was incurred in the final processing department during the yearExplanation / Answer
1.
Opening Raw Material = 370000 units
Total transferred cost = $93,980,000
Cost per unit transferred =(93980000/370000) = $254
Units produced and sold= 348,000
25% of remaining units complete = (370000-348000)*25% = 5500
Total produced units = 348000+5500 = 353500 units
Total cost of conversion = $23,118,900
Per unit cost of conversion = 23118900/353500 = $65.4
COGS = 348000*(254+65.4)
= $111,151,200
(b)
Gary wants the percentage completion to be increased.
(c)
Cost per EUP
Cost of goods sold = cost per equivalent unit * units completed and sold
111151200 – 132240 = (254 + x) * 348000
111018960 = (254 + x) * 348000
319.02 = (254 + x)
x = 319.02-254
x = 65.02
EUP
EUP = Cost of conversion added during period / cost per EUP
EUP = 23118900 / 65.02
EUP = 355566
Percentage completion
EUP = Units completed and sold + (Ending WIP * Percentage completion)
355566 = 348000 + (16500*x)
355566 - 348000 = (16500*x)
X = 7566/16500 = 45.85%
Percentage completion of 45.85% would result in increasing reported net operating income by $132,240 over the net operating income that would be reported if the 25% figure were used.