17-47 Benchmarking, ethics. Amanda McNall is the corporate controller of Scott Quarry. Scott Quarry operates 12 rock-crushing plants in Scott County, Kentucky, that process huge chunks of limestone rock extracted from underground mines. Given the competitive landscape for pricing, Scott’s managers pay close attention to costs. Each plant uses a process-costing system, and at the end of every quarter, each plant manager submits a production report and a production-cost report. The production report includes the plant manager’s estimate of the percentage of completion of the ending work in process as to direct materials and conversion costs, as well as the level of processed limestone inventory. McNall uses these estimates to compute the cost per equivalent unit of work done for each input for the quarter. Plants are ranked from 1 to 12, and the three plants with the lowest cost per equivalent unit for direct materials and conversion costs are each given a bonus and recognized in the company newsletter. McNall has been pleased with the success of her benchmarking program. However, she has recently received anonymous e-mails that two plant managers have been manipulating their monthly estimates of percentage of completion in an attempt to obtain the bonus. Q. Why and how might managers manipulate their monthly estimates of percentage of completion and level of inventory?

FINANCIAL ACCOUNTING
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Author:Libby
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Chapter1: Financial Statements And Business Decisions
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17-47 Benchmarking, ethics. Amanda McNall is the corporate controller of Scott Quarry. Scott Quarry operates 12 rock-crushing plants in Scott County, Kentucky, that process huge chunks of limestone rock extracted from underground mines. Given the competitive landscape for pricing, Scott’s managers pay close attention to costs. Each plant uses a process-costing system, and at the end of every quarter, each plant manager submits a production report and a production-cost report. The production report includes the plant manager’s estimate of the percentage of completion of the ending work in process as to direct materials and conversion costs, as well as the level of processed limestone inventory. McNall uses these estimates to compute the cost per equivalent unit of work done for each input for the quarter. Plants are ranked from 1 to 12, and the three plants with the lowest cost per equivalent unit for direct materials and conversion costs are each given a bonus and recognized in the company newsletter. McNall has been pleased with the success of her benchmarking program. However, she has recently received anonymous e-mails that two plant managers have been manipulating their monthly estimates of percentage of completion in an attempt to obtain the bonus.

Q. Why and how might managers manipulate their monthly estimates of percentage of completion and level of inventory?

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