4-2
4-3
4-4
4-5
McGraw-Hill/Irwin
Managerial Accounting, 6/e
4-6
4-7
XXX
XXX
(b) Journal entry to record transfer of goods from the first to the second department
in the production sequence:
Work-in-Process Inventory: Department B ....................
Work-in-Process Inventory: Department A .........
XXX
XXX
4-8
Transferred-in costs are the costs assigned to partially completed products that
have been transferred from one production department into the next department.
4-9
The $182,000 of transferred-in costs were incurred prior to January 1 and in the
mixing department. The costs must have been incurred prior to January 1, because
they are included in the cost of the beginning work-in-process inventory on that
date. Moreover, these costs must have been incurred in the mixing department,
because they have been transferred into the cooking department.
4-10
The name ''weighted-average method'' comes from the fact that the cost per
equivalent unit computed under this method is a weighted average of costs incurred
during the current period and costs incurred during prior periods.
McGraw-Hill/Irwin
4-2
4-11
The difference between normal and actual costing lies in the calculation of the
manufacturing-overhead cost of the current period. Under actual costing, the
manufacturing-overhead cost of the current period is the actual overhead cost
incurred during the period. Under normal costing, the current-period manufacturing
overhead is computed as the product of the predetermined overhead rate and the
actual level of the cost driver used to apply manufacturing overhead.
4-12
If manufacturing overhead were applied according to some activity base (or cost
driver) other than direct labor, then direct-labor costs and manufacturing-overhead
costs would be accounted for separately instead of being combined into one
account called "conversion costs." Thus, instead of two columns for direct-material
and conversion costs, there would be three columns: direct material, direct labor,
and manufacturing overhead.
4-13
4-14
4-15
There is no direct material in the March 1 work in process for the stitching
department because direct material (rawhide lacing) is added at the end of the
process in that department.
McGraw-Hill/Irwin
Managerial Accounting, 6/e
SOLUTIONS TO EXERCISES
EXERCISE 4-16 (10 MINUTES)
The general formula for all three cases is the following:
Work-in-process,
beginning
Units started
during month
Units completed
during month
Work-in-process,
ending
9,000 pounds
2.
12,500 yards
3.
72,000 liters
McGraw-Hill/Irwin
4-4
145,000
25,000
170,000
100%
75%
100%
20%
145,000
18,750
______
163,750
145,000
5,000
_______
150,000
2,400,000
250,000
2,650,000
100%
70%
2,400,000
250,000
________
2,650,000
2,400,000
175,000
________
2,575,000
2.
3,800
1,700
5,500
100%
20%
3,800
1,700
_____
(1) 5,500
3,800
340
____
(2) 4,140
= $230,300 47,000
McGraw-Hill/Irwin
4-6
Total
$ 39,850
272,900
$312,750
$3.15
.......................
transferred out equivalent unit
2.
89,000 $3.15
$280,350
$ 16,800
15,600
32,400
$312,750
McGraw-Hill/Irwin
Managerial Accounting, 6/e
Direct
Material
103,000
(89,000)
14,000
Conversion
97,000
(89,000)
8,000
$9.70
.....................
transferred out equivalent unit
2.
Total
$ 102,650
425,300
$527,950
47,000 $9.70
$455,900
$60,450
11,600
72,050
$527,950
McGraw-Hill/Irwin
4-8
Direct
Material
62,500
(47,000)
15,500
Conversion
49,000
(47,000)
2,000
Accumulated
by
department
Conversion costs:
Direct-labor
Manufacturing
overhead
Work-in-Process Inventory:
Finishing Department
Batch P25
Accumulated
by
batch
Batch S33
Directmaterial
costs
Work-in-Process Inventory:
Packaging Department
Batch P25
Finished-Goods Inventory
McGraw-Hill/Irwin
Managerial Accounting, 6/e
$21.00
-07.50
6.00
.50
$35.00
Scholastic
-0$11.25
7.50
6.00
-0$24.75
*The two production departments each worked on a total of 6,000 balls, but the Packaging
Department handled only the 2,000 professional balls.
3.
Journal entries:
Work-in-Process Inventory: Preparation Department ..........
Raw-Material Inventory...................................................
39,500*
39,500
45,000*
45,000
45,000*
45,000
129,500*
129,500
McGraw-Hill/Irwin
4-10
36,000*
36,000
66,500*
99,000
165,500
3,500
2,500*
1,000
70,000*
70,000
McGraw-Hill/Irwin
Managerial Accounting, 6/e
1,635,000
2.
1,350,000
3.
1,087,500
600,000
4.
McGraw-Hill/Irwin
4-12
105,000
510,000
1,020,000
1,350,000
37,500
420,000
630,000
600,000
SOLUTIONS TO PROBLEMS
PROBLEM 4-27 (45 MINUTES)
1.
2.
Physical
Units
40,000
190,000
230,000
180,000
50,000
230,000
Equivalent units:
Percentage
of
Completion
with
Physical Respect to
Units
Conversion
40,000
38%
190,000
230,000
180,000
50,000
230,000
100%
55%
Equivalent Units
Direct
Material Conversion
180,000
50,000
180,000
27,500
230,000
207,500
McGraw-Hill/Irwin
Managerial Accounting, 6/e
Direct
Material
$110,500
430,000
$540,500
230,000
$2.35
Conversion
$ 22,375
320,000
$342,375
207,500
$1.65
Total
$132,875
750,000
$882,875
$4.00
180,000 $4.00
$720,000
50,000 $2.35
$117,500
27,500 $1.65
45,375
cost per
number of
unit of
units of
Conversion:
number of cost per
conversion conversion
$162,875
$720,000
162,875
$882,875
McGraw-Hill/Irwin
4-14
2.
80,000
30,000
110,000
Equivalent units:
Physical
Units
Work in process, April 1 .............
10,000
Units started during April ........... 100,000
Total units to account for ........... 110,000
Units completed and
transferred out during April ...
Work in process, April 30
Total units accounted for............
Total equivalent units..................
3.
Physical
Units
10,000
100,000
110,000
80,000
30,000
110,000
Percentage
of
Completion
with
Respect to
Conversion
20%
100%
33 1/3%
Equivalent Units
Direct
Material Conversion
80,000
30,000
______
110,000
80,000
10,000
_____
90,000
Direct
Material
$ 22,000
198,000
$220,000
110,000
$2.00*
Conversion
$ 4,500
158,400
$162,900
90,000
$1.81
Total
$ 26,500
356,400
$382,900
$3.81
McGraw-Hill/Irwin
Managerial Accounting, 6/e
........................... 80,000 $3.81
transferred out equivalent unit
$304,800
equivalent
equivalent
units of
unit of
.......................... 30,000 $2.00
direct
material
direct
material
$60,000
Conversion:
number of cost per
equivalent equivalent
units of
unit of
.................................... 10,000 $1.81
conversion conversion
18,100
$78,100
$304,800
78,100
$382,900
McGraw-Hill/Irwin
4-16
2.
Physical
Units
210,000
1,100,000
1,310,000
1,000,000
310,000
1,310,000
Equivalent units:
McGraw-Hill/Irwin
Managerial Accounting, 6/e
Percentage
of
Completion
with
Physical Respect to
Conversion
Units
210,000
83%
1,100,000
1,310,000
1,000,000
310,000
1,310,000
100%
48%
Equivalent Units
Direct
Material Conversion
1,000,000
310,000
________
1,310,000
1,000,000
148,800
________
1,148,800
Direct
Material Conversion
Total
a
$ 300,000 $ 620,800 $ 920,800
1,403,000 3,400,000b 4,803,000
$1,703,000 $4,020,800 $5,723,800
1,310,000
1,148,800
c
$1.30
$3.50d
$4.80e
aConversion
cost
=
=
=
=
=
bConversion
cost
=
=
=
c$1.30
= $1,703,000 1,310,000
d$3.50
= $4,020,800 1,148,800
e$4.80
= $1.30 + $3.50
McGraw-Hill/Irwin
4-18
.................... 1,000,000 $4.80
transferred out equivalent unit
$4,800,000
equivalent
equivalent
units of
........................
unit of
310,000 $1.30
$403,000
148,800 $3.50
520,800
Conversion:
number of cost per
equivalent equivalent
units of unit of ..................................
conversion
conversion
$923,800
$4,800,000
923,800
$5,723,800
Equivalent units:
Physical
Units
Work in process, August 1............
40,000
Units started during August..........
80,000
Total units to account for .............. 120,000
Units completed and transferred
out during August......................
Work in process, August 31..........
Total units accounted for ..............
Total equivalent units ....................
2.
100,000
20,000
120,000
Percentage
of
Completion
with
Respect to
Conversion
80%
100%
30%
Equivalent Units
Direct
Material Conversion
100,000
20,000
______
120,000
100,000
6,000
______
106,000
Direct
Material
$138,000
120,000
Conversion
$1,089,680
106,000
$1.15
$10.28
Total
$11.43*
..................... 100,000 $11.43
transferre
d
out
equivalent
unit
McGraw-Hill/Irwin
4-20
$1,143,000
equivalent
equivalent
units of
unit of
.........................
direct
material
direct
material
20,000 $1.15
$23,000
6,000 $10.28
61,680
Conversion:
number of cost per
equivalent equivalent
units of
unit of
...................................
conversion conversion
5.
$ 84,680
$1,143,000
84,680
$1,227,680
Journal entry:
Finished-Goods Inventory.................................................
Work-in-Process Inventory.....................................
McGraw-Hill/Irwin
Managerial Accounting, 6/e
1,143,000
1,143,000
a. Equivalents units:
Physical
Units
Work in process, June 1 .............
30,000
Units started during June ...........
34,000
Total units to account for ...........
64,000
Units completed and
transferred out during June ...
Work in process, June 30 ...........
Total units accounted for............
Total equivalent units..................
40,000
24,000
64,000
Percentage
of
Completion
with
Respect to
Conversion
35%
100%
75%
Equivalent Units
Direct
Material Conversion
40,000
24,000
_____
64,000
40,000
18,000
_____
58,000
b. Unit costs:
Total costs to account for
Equivalent units
Direct
Material
$348,800
64,000
Conversion
$2,844,900
58,000
Total
$5.45
$49.05
$54.50*
McGraw-Hill/Irwin
4-22
40,000 $54.50
$2,180,000
equivalent
equivalent
units of
unit of
24,000 $5.45
$130,800
882,900
Conversion:
number of cost per
equivalent equivalent
units of
unit of
conversion conversion
$1,013,700
$2,180,000
1,013,700
$3,193,700
Journal entry:
Finished-Goods Inventory.............................................
Work-in-Process Inventory ..................................
McGraw-Hill/Irwin
Managerial Accounting, 6/e
2,180,000
2,180,000
$ 225,000
710,000
455,000
$1,390,000
Goods completed during April cost $2,002,000 (26,000 units x $77) as the following
calculations show:
Physical
Units
Percentage
Of
Completion
Equivalent Units
With
Respect to Direct
Conversion Material Conversion
3,000
27,000
30,000
80%
26,000
4,000
30,000
100%
45%
McGraw-Hill/Irwin
4-24
26,000
4,000
26,000
1,800
30,000
27,800
Direct
Material
Conversion
Total
$ 230,000
1,390,000
$1,620,000
30,000
$54a
$ 63,940
575,460
$639,400
27,800
$23b
$ 293,940
1,965,460
$2,259,400
$77c
a$1,620,000
30,000 = $54
27,800 = $23
c$54 + $23 = $77
b$639,400
3.
4.
5.
(a)
No material would be added during May. All material is introduced at the start
of the manufacturing process, and these units were begun in April.
(b)
Since the work-in-process inventory is 45% complete at the end of April, 55%
of the conversion would be done in May.
Given that the ending work-in-process inventory is at the 45% stage of completion,
these units would not have reached the 75% point in April where TH55 is added.
Therefore, there would be zero equivalent units with respect to part TH55 in the
ending work-in-process inventory.
McGraw-Hill/Irwin
Managerial Accounting, 6/e
10,000
75,000
78,500
$ 30,225
600,000
11.85
1,556,250
44,500
McGraw-Hill/Irwin
4-26
75,000
5,000
80,000
100%
70%
75,000
5,000
_____
80,000
75,000
3,500
_____
78,500
Direct
Material
$112,000
600,000
$712,000
80,000
$8.90*
Conversion
$ 30,225
900,000
$930,225
78,500
$11.85
Total
$ 142,225
1,500,000
$1,642,225
$20.75**
McGraw-Hill/Irwin
Managerial Accounting, 6/e
...............................
transferred out equivalent unit
75,000 $20.75
$1,556,250
5,000 $8.90
$44,500
3,500 $11.85
41,475
$85,975
equivalent
equivalent
units of
unit of
.................................
Conversion:
number of cost per
equivalent equivalent
units of
unit of
............................................
conversion
conversion
McGraw-Hill/Irwin
4-28
$1,556,250
85,975
$1,642,225
The ending work-in-process inventory consisted of 400 units (200 + 800 600).
2.
The cost of goods completed during June totaled $57,000 (600 units x $95):
Percentage
Of
Equivalent Units
Completion
__________________
With
Direct
Physical Respect to
Conversion Material Conversion
Units
________ __________ ______ __________
Work in process, June 1.
200
25%
Units started during June..
800
Total units to account for...
1,000
Units completed and transferred
during June..
Work in process, June 30...
Total units accounted for
Total equivalent units..
600
400
1,000
100%
75%
Direct
Material Conversion
_______ __________
Work in process, June 1 $12,000
$ 6,000
Costs incurred during June.
43,000
30,000
Total costs to account for. $55,000
$36,000
Equivalent units...
1,000
900
a
Cost per equivalent unit.
$55
$40b
600
400
600
300
1,000
900
Total
______
$18,000
73,000
$91,000
$95c
a$55,000
1,000 = $55
900 = $40
c$55 + $40 = $95
b$36,000
Finished-Goods Inventory
Work-in-Process Inventory.
3.
57,000
57,000
McGraw-Hill/Irwin
Managerial Accounting, 6/e
Equivalent units measure the amount of manufacturing activity (i.e., for direct
material or conversion) that has been applied to a batch of physical units. If, for
example, a company has 1,000 physical units in process that are 30% complete as to
conversion, the firm has done the equivalent amount of conversion activity as would
be required to do all of the conversion work for 300 units (1,000 x 30%).
Equivalent units are needed to state manufacturing activity on a common
measurement scale. One cannot add completed units to units in process. Such a
combination is like adding apples and oranges, as some units are complete and
some are incomplete. Instead, these units are first converted to equivalent units,
and the latter are then used in unit-cost calculations.
McGraw-Hill/Irwin
4-30
a. Equivalent units:
Tax
Returns
(physical
units)
Returns in process, February 1 ....
300
Returns started in February ..........
900
Total returns to account for .......... 1,200
Returns completed
during February........................
800
Returns in process, February 28 ..
400
Total returns accounted for .......... 1,200
Total equivalent units of activity ..
Percentage
of
Completion
with Respect
to
Conversion
(labor and
overhead)
20%
100%
75%
Equivalent Units
Labor
Overhead
800
300
____
1,100
800
300
____
1,100
Overhead
4,000
51,000
55,000
1,100
50.00
Total
7,500
141,000
148,500
Labor
3,500
90,000
93,500
1,100
85.00
135.00
McGraw-Hill/Irwin
Managerial Accounting, 6/e
25,500
15,000
40,500
55,000
60,000
66,000
$ 110,600
400,000
14.10
1,320,000
158,000
McGraw-Hill/Irwin
4-32
60,000
20,000
80,000
100%
30%
60,000
20,000
_____
80,000
60,000
6,000
_____
66,000
Direct
Material
$232,000
400,000
$632,000
80,000
$7.90
Conversion
$110,600
820,000
$930,600
66,000
$14.10
Total
$ 342,600
1,220,000
$1,562,600
$22.00
...........................
transferre
d
out
equivalent
unit
60,000 $22.00
$1,320,000
20,000 $7.90
$ 158,000
6,000 $14.10
84,600
equivalent
equivalent
units of
unit of
..............................
direct
material
direct
material
Conversion:
number of cost per
equivalent equivalent
units of
unit of
.........................................
conversion conversion
$242,600
$1,320,000
242,600
$1,562,600
2005 The McGraw-Hill Companies, Inc.
4-33
16,000
6,000
22,000
100%
30%
Direct
Material
$ 31,600
85,000*
$116,600
22,000
$5.30
16,000
6,000
____ _
22,000
Conversion
$ 55,220
210,000
$265,220
17,800
$14.90
16,000
1,800
_ ____
17,800
Total
$ 86,820
295,000
$381,820
$20.20
McGraw-Hill/Irwin
4-34
.............................. 16,000 $20.20
transferred out equivalent unit
$323,200
equivalent
equivalent
units of
unit of
.................................. 6,000 $5.30
direct
material
direct
material
$31,800
Conversion
2.
equivalent equivalent
units of
unit of
............................................ 1,800 $14.90
conversion
conversion
26,820
$58,620
$323,200
58,620
$381,820
85,000
70,000
140,000*
85,000
70,000
140,000
McGraw-Hill/Irwin
Managerial Accounting, 6/e
323,200
323,200
$76,000 + $460,000
5,500 + 2,000 + 2,500
*Note that all of the products sold after processing in departments I, II, or III were
produced orginally in department I.
2.
$44,000 + $136,000
2,000 + 2,500
*Note that all of the products sold after processing in departments II and III were
colored in department II.
3.
$900,000
+ $53.60
10,000
McGraw-Hill/Irwin
4-36
= $143.60 +
direct material
conversion cost per
+ per unit in department II + unit in department II
$144,000
+ $40.00
4,500
5.
$76,000 + $147,500
2,500
The unit costs and total costs for each of the products manufactured by Plattsburg
Plastics Corporation during the month of March are calculated as follows:
Units produced.....................
Material costs .......................
Unit material cost..........
Conversion costs* ...............
Unit conversion cost ....
Extrusion
32,000
$288,000
9.00
588,000
18.375
Form
22,000
$ 66,000
3.00
198,000
9.00
Trim
10,000
$22,500
2.25
103,500
10.35
Finish
4,000
$18,000
4.50
63,000
15.75
McGraw-Hill/Irwin
Managerial Accounting, 6/e
Plastic
Sheets
Standard
Model
Deluxe
Model
Executive
Model
$9.00
$9.00
3.00
$9.00
3.00
2.25
$9.00
3.00
2.25
4.50
18.375
18.375
9.00
_
$27.375
10,000
$273,750
_
$39.375
12,000
$472,500
18.375
9.00
10.35
_
$51.975
6,000
$311,850
18.375
9.00
10.35
15.75
$72.225
4,000
$288,900
Total
Product Costs
$ 273,750
472,500
311,850
288,900
$1,347,000
Journal entries:
Work-in-Process Inventory: Extrusion ..............................
Raw-Material Inventory .............................................
Applied Conversion Costs .......................................
876,000
273,750
866,250
McGraw-Hill/Irwin
4-38
288,000
588,000
273,750
602,250
66,000
198,000
472,500
519,750
311,850
288,900
288,900
McGraw-Hill/Irwin
Managerial Accounting, 6/e
472,500
393,750
22,500
103,500
311,850
207,900
18,000
63,000
288,900
Conversion costs:
Rolling
Direct labor ................................... $ 600,000
Manufacturing overhead ..............
900,000
Total conversion cost ................... $1,500,000
Total units produced:
Rolling only ............................
Rolling, molding, punching
Rolling, molding, punching,
and dipping
Conversion cost per unit..............
McGraw-Hill/Irwin
4-40
Molding
$224,000
336,000
$560,000
Punching
$256,000
384,000
$640,000
4,000
4,000
Dipping
$ 90,000
135,000
$225,000
10,000
1,500
$150
$140
$160
$150
Product costs:
Ceralam
Sheets
Sold
after
Rolling
Direct material:
Ceralam sheets .................
Chemical dip......................
Conversion costs:
Rolling................................
Molding ..............................
Punching ...........................
Dipping ..............................
Total cost ..................................
Units manufactured .................
Unit cost....................................
Non
reflective
Ceralam
Housings
Relective
Ceralam
Housings
Total
Costs
$ 960,000
$ 400,000
$ 240,000
60,000
$1,600,000
60,000
900,000a
375,000a
350,000b
400,000c
________
$1,525,000
2,500
$610
225,000a
210,000b
240,000c
225,000d
$1,200,000
1,500
$800
1,500,000
560,000
640,000
225,000
$4,585,000
_______
$1,860,000
6,000
$310
bNumber
3.
Journal entries:
Work-in-Process Inventory: Rolling ....................................
Raw-Material Inventory...............................................
Applied Conversion Costs .........................................
3,100,000
1,600,000*
1,500,000
$1,500,000
McGraw-Hill/Irwin
Managerial Accounting, 6/e
1,860,000*
1,860,000
1,860,000*
1,860,000
1,240,000*
1,240,000
560,000*
560,000
1,800,000*
1,800,000
640,000*
640,000
McGraw-Hill/Irwin
4-42
1,525,000*
1,525,000
1,525,000*
1,525,000
915,000*
915,000
285,000
60,000*
225,000
1,200,000*
1,200,000
McGraw-Hill/Irwin
Managerial Accounting, 6/e
1,200,000
1,200,000
a.
b.
5,950
$16.00
$95,200
700
7,000
7,700
5,950
1,750
Cost
$10,500
5,250
3,675
$19,425
7,700
$6.00
$46,200
14,500
$31,700
McGraw-Hill/Irwin
4-44
31,700
31,700
SOLUTIONS TO CASES
CASE 4-42 (60 MINUTES)
PRODUCTION REPORT: AGRITECH, INC. - MIXING DEPARTMENT
Weighted-Average Method
Percentage
of
Completion
Equivalent Units
with
Physical
Respect to
Direct
Units
Conversion
Material Conversion
Work in process, September 1 ........
-0
Units started during September......
38,000
Total units to account for ................
38,000
Units completed and transferred
out during September .................
Work in process, September 30 ......
Total units accounted for.................
Total equivalent units.......................
38,000
-038,000
100%
Direct
Material
-0$304,000
$304,000
38,000
$8.00
38,000
-0_____
38,000
Conversion
-0$95,000
$95,000
38,000
$2.50
38,000
-0_____
38,000
Total
-0$399,000
$399,000
$10.50
...........................
transferred out equivalent unit
38,000 $10.50
$399,000
-0-
$399,000
-0$399,000
37,000*
3,000
40,000
100%
40%
37,000
3,000
_____
40,000
37,000
1,200
_____
38,200
Transferred
In
$ 41,000
399,000*
$440,000
40,000
$11.00
Conversion
$ 24,600
90,000
$114,600
38,200
$3.00
Total
$ 65,600
489,000
$554,600
$14.00
*Cost of goods completed and transferred out of Mixing Department during September,
under the weighted-average method.
McGraw-Hill/Irwin
4-46
........................
transferred out equivalent unit
37,000 $14.00
$518,000
cost per
equivalent
equivalent ......................
units of
transferre
d
in
cost
unit
3,000 $11.00
$33,000
1,200 $3.00
3,600
Direct material:
None
Conversion:
number of conversion
equivalent
cost
per
equivalent .......................................
units of
conversion
unit
McGraw-Hill/Irwin
Managerial Accounting, 6/e
$36,600
$518,000
36,600
$554,600
8,500
8,260
2.
$6.00
$7.00
3.
$3,520
$105,300
4.
$13.00
These answers are supported by the following process-costing schedules. The firm's cost
per belt used for planning and control, $11.50, is substantially lower than the actual cost per
belt incurred in October, $13.00. Management should investigate this situation to determine
whether production costs can be reduced. If not, then the cost used for planning and
control purposes should be changed to reflect the firm's actual experience.
CALCULATION OF EQUIVALENT UNITS: LYCOMING LEATHER CO. - HARRISBURG PLANT
Weighted-Average Method
Percentage
of
Completion
Equivalent Units
with
Respect to
Physical
Direct
Conversion
Units
Material Conversion
Work in process, October 1.............
500
30%
Units started during October...........
8,000
Total units to account for ................
8,500
Units completed and transferred
out during October .........................
Work in process, October 31...........
Total units accounted for.................
Total equivalent units.......................
McGraw-Hill/Irwin
4-48
8,100
400
8,500
100%
40%
8,100
400
8,100
160
8,500
8,260
...........................
transferred out equivalent unit
8,100 $13.00
$105,300
400 $6.00
$2,400
160 $7.00
1,120
cost per
number of
equivalent
equivalent
..............................
unit of
units of
Conversion:
number of cost per
equivalent equivalent
.........................................
unit of
units of
conversion
conversion
McGraw-Hill/Irwin
Managerial Accounting, 6/e
$3,520
If the units were 50 percent complete as of October 31, there would be 8,300
equivalent units with respect to conversion. (To see this, just change the 160 in the
right-hand column of the equivalent-units part of the table in the solution to
requirement (4) to 200. This changes the last number in the right-hand column
from 8,260 to 8,300.)
Now the unit cost of conversion drops from $7.00, as currently computed,
to $6.97 (rounded, $57,820 8,300). Thus, the unit cost drops from $13.00 to $12.97
(rounded).
As controller, Jeff Daley has an ethical obligation to refuse his friend's
request to alter the estimate of the percentage of completion. What Daley can do is
to help Murray think of some legitimate ways to bring about real cost reductions.
Several ethical standards for management accountants (listed in Chapter 1) apply
in this situation. Among the relevant standards are the following:
Competence:
Objectivity:
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