Question

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 10,400 barrels. Work-in-process on November 30 is 1,400 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 $18,106 and conversion costs of $22,400 for November. All production is sold as it is produced.
   

Required:

a. Compute cost of goods sold for November. (Do not round intermediate calculations.)

b. What is the value of work-in-process inventory on November 30? (Do not round intermediate calculations.)

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.

  

(1) In order to generate higher income, would the controller raise or lower the estimated percentage of completion on the ending work-in-process inventory?

  

Answer 1

	Physical units	Equivalent units
Units completed	9000	9000	=10400-1400
Work-in-process, November 30	1400	420	=1400*30%
Total	10400	9420
Total costs	40506	=18106+22400
Divide by Equivalent units	9420
Cost per Equivalent unit	4.30
a
Units completed and sold	9000
X Cost per Equivalent unit	4.3
Cost of goods sold for November	38700
b
Work-in-process, November 30	420
X Cost per Equivalent unit	4.3
Work-in-process inventory on November 30	1806
c
The controller would raise estimated percentage of completion on the ending work-in-process inventory
Raising percentage of completion on the ending work-in-process inventory would reduce cost per equivalent unit
and thus less cost will be allocated to units sold.