Chapter 6, Problem 35E

Basic Product Costing: Ethical Issues

Old Tyme Soda produces one flavor of a popular local soft drink. It had no work in process on October 31 in its only inventory account. During November, Old Tyme started 10,000 barrels. Work in process on November 30 is 1,200 barrels. The production supervisor estimates that the ending work-in-process inventory is 30 percent complete. An examination of Old Tyme’s accounting records shows direct material costs of $18,072 and conversion costs of $20,400 for November. All production is sold as it is produced.

Required

1. a.      Compute cost of goods sold for November.
2. b.      What is the value of work-in-process inventory on November 30?
3. c.       The president tells the controller that stock analysts expect higher income for the month and asks the controller to change the production manager’s estimate about the ending work-in-process inventory.
4. (1) If the controller wanted to comply with the president’s request, would he raise or lower the estimated percentage complete from the 30 percent estimate of the production supervisor? Explain.
5. (2) What should the controller do?