1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?
1. Tom Winthrop estimated that the units in ending work in process inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, what would be the cost of goods sold for the year?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Topic Video
Question
Case #2 - General Electronics Company
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 5% 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:
1. Gary:How’s it going, Mary?
2. Mary:Fine, Gary. How’s it going with you?
3. Gary:Great! I just got the preliminary profit figures for the division for last year
and we are within $200,000 of making the year’s target profits. All we have to do
is pull a few strings, and we’ll be over the top!
4. Mary:What do you mean?
5. Gary:Well, one thing that would be easy to change is your estimate of the
percentage completion of your ending work in process inventories.
6. 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. Page 181
7. 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 inventory. During the year, 210,000 units were
transferred in from the prior processing department and 200,000 units were
completed and sold. Costs transferred in from the prior department totaled
$39,375,000. No materials are added in the final processing department. A
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 5% 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:
1. Gary:How’s it going, Mary?
2. Mary:Fine, Gary. How’s it going with you?
3. Gary:Great! I just got the preliminary profit figures for the division for last year
and we are within $200,000 of making the year’s target profits. All we have to do
is pull a few strings, and we’ll be over the top!
4. Mary:What do you mean?
5. Gary:Well, one thing that would be easy to change is your estimate of the
percentage completion of your ending work in process inventories.
6. 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. Page 181
7. 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 inventory. During the year, 210,000 units were
transferred in from the prior processing department and 200,000 units were
completed and sold. Costs transferred in from the prior department totaled
$39,375,000. No materials are added in the final processing department. A
total of $20,807,500 of conversion cost was incurred in the final processing
department during the year.
Required:
1. Tom Winthrop estimated that the units in ending work in process
inventory in the final processing department were 30% complete with
respect to the conversion costs of the final processing department. If this
estimate of the percentage completion is used, what would be the cost of
goods sold for the year?
2. Does Gary Stevens want the estimated percentage completion to be
increased or decreased? Explain why.
3. What percentage completion would result in increasing reported net
operating income by $200,000 over the net operating income that would
be reported if the 30% figure were used?
4. Do you think Mary James should go along with the request to alter
estimates of the percentage completion? Why or why not?
department during the year.
Required:
1. Tom Winthrop estimated that the units in ending work in process
inventory in the final processing department were 30% complete with
respect to the conversion costs of the final processing department. If this
estimate of the percentage completion is used, what would be the cost of
goods sold for the year?
2. Does Gary Stevens want the estimated percentage completion to be
increased or decreased? Explain why.
3. What percentage completion would result in increasing reported net
operating income by $200,000 over the net operating income that would
be reported if the 30% figure were used?
4. Do you think Mary James should go along with the request to alter
estimates of the percentage completion? Why or why not?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Step 1: Introduction :
VIEWStep 2: Calculation of cost of goods sold
VIEWStep 3: Estimated percentage completion to be increased or decreased.
VIEWStep 4: Calculate the percentage completion in increasing reported net operating income.
VIEWStep 5: Mary James should go along with the request to alter estimates of the percentage completion
VIEWSolution
VIEW
Trending now
This is a popular solution!
Step by step
Solved in 6 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education