Question

Management Accounting, Case 4-20...I need to see the answer to this question in an excel spreadsheet...

ACCT505 – Managerial Accounting

Case Study 2

Chapter 4 – Process Costing

Team Assignment (2-3 Team members recommended)

CASE 4–20 Ethics and the Manager, Understanding the Impact of Percentage Completion on Profit—Weighted-Average Method [Course Objective B] 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:

Gary: How’s it going, Mary?

Mary: Fine, Gary. How’s it going with you?

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!

Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. 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. 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 inventories. 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 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? (Note: Since all units completed were sold, the cost of goods transferred out = Cost of Goods Sold.)

2.            Gary is recommending that the completion percentage by adjusted by 10 percentage points in order to assist the team in making their bonus.

a. Calculate the cost of goods sold if the ending inventory is 20% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

b. Calculate the cost of goods sold if the ending inventory is 40% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

c. Based on your calculations, which percentage is Gary suggesting that Mary use for her ending inventory calculations.

3.            Do you think Mary James should go along with the request to alter estimates of the percentage completion? Why or why not?

Deliverables:

Submit an Excel spreadsheet that documents the calculations made for steps 1 and 2 above. All items should be clearly labeled, and appropriate formulas should be used to perform your calculations.

For step 3, submit a 5-7 minute narrated PowerPoint (preferably using VoiceThread) that highlights your discussion of the operational and ethical issues that Mary is facing as a result of the request to change the percent complete on ending inventory. Be sure to make a recommendation in regard to making this decision. The presentation should be 3-4 slides.

One team member should post the PowerPoint and workbook on behalf of the team to the Week 3 Dropbox for the case study.

NOTE: as a team project, a team collaboration tool (such as Cisco Spark) should be used for the students to collaborate on the project!

ACCT505 – Managerial Accounting

Case Study 2

Chapter 4 – Process Costing

Team Assignment (2-3 Team members recommended)

CASE 4–20 Ethics and the Manager, Understanding the Impact of Percentage Completion on Profit—Weighted-Average Method [Course Objective B] 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:

Gary: How’s it going, Mary?

Mary: Fine, Gary. How’s it going with you?

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!

Mary: What do you mean? Gary: Well, one thing that would be easy to change is your estimate of the percentage completion of your ending work in process inventories. 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. 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 inventories. 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 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? (Note: Since all units completed were sold, the cost of goods transferred out = Cost of Goods Sold.)

2.            Gary is recommending that the completion percentage by adjusted by 10 percentage points in order to assist the team in making their bonus.

a. Calculate the cost of goods sold if the ending inventory is 20% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

b. Calculate the cost of goods sold if the ending inventory is 40% complete in regard to conversion costs. Would net income increase or decrease if this option was chosen over the 30% completion percentage? How much is the increase?

c. Based on your calculations, which percentage is Gary suggesting that Mary use for her ending inventory calculations.

3.            Do you think Mary James should go along with the request to alter estimates of the percentage completion? Why or why not?

Deliverables:

Submit an Excel spreadsheet that documents the calculations made for steps 1 and 2 above. All items should be clearly labeled, and appropriate formulas should be used to perform your calculations.

For step 3, submit a 5-7 minute narrated PowerPoint (preferably using VoiceThread) that highlights your discussion of the operational and ethical issues that Mary is facing as a result of the request to change the percent complete on ending inventory. Be sure to make a recommendation in regard to making this decision. The presentation should be 3-4 slides.

One team member should post the PowerPoint and workbook on behalf of the team to the Week 3 Dropbox for the case study.

NOTE: as a team project, a team collaboration tool (such as Cisco Spark) should be used for the students to collaborate on the project!

Answer 1

1	Computation of Cost sold for the year
	Unit sold during the year		$200,000
	Cost incurred in Prior final processing department on 210000 Unit		$39,375,000
	Total Conversion Cost Incurred for 200000 Unit sold and in WIP		$20,807,500
	30% of balance stock ( 10000*30%)
	200000+30% of 10000 Unit i.e. 203000
	Cost incurred on prior processing departmnet on 200000 unit sold ( i)		$37,500,000
	( 39375000/210000*200000)
	Conversion cost for Final Processing deparmtnet (ii)		$20,500,000
	(20807500/203000*200000)
	Cost of good 200000 unit sold (i-ii)		$58,000,000
2.a.	Computation of Cost sold for the year , if WIP completion20%
	Unit sold during the year		$200,000
	Cost incurred in Prior final processing department on 210000 Unit		$39,375,000
	Total Conversion Cost Incurred for 200000 Unit sold and in WIP		$20,807,500
	20% of balance stock ( 10000*20%)
	200000+20% of 10000 Unit i.e. 202000
	Cost incurred on prior processing departmnet on 200000 unit sold ( i)		$37,500,000
	( 39375000/210000*200000)
	Conversion cost for Final Processing deparmtnet (ii)		$20,601,485.15
	(20807500/202000*200000)
	Cost of good 200000 unit sold (i-ii)		$58,101,485
	Cost of good sold by considering 30% Completion for WIP Stock		$58,000,000
	Cost of good sold by considering 20% Completion for WIP Stock		$58,101,485
	Cost of goods solde increased		$101,485
	Hence, Net income decreased by $ 101485
2.b.	Computation of Cost sold for the year , if WIP completion40%
	Unit sold during the year		$200,000
	Cost incurred in Prior final processing department on 210000 Unit		$39,375,000
	Total Conversion Cost Incurred for 200000 Unit sold and in WIP		$20,807,500
	40% of balance stock ( 10000*20%)
	200000+40% of 10000 Unit i.e. 204000
	Cost incurred on prior processing departmnet on 200000 unit sold ( i)		$37,500,000
	( 39375000/210000*200000)
	Conversion cost for Final Processing deparmtnet (ii)		$20,399,509.80
	(20807500/204000*200000)
	Cost of good 200000 unit sold (i-ii)		$57,899,510
	Cost of good sold by considering 30% Completion for WIP Stock		$58,000,000
	Cost of good sold by considering 40% Completion for WIP Stock		$57,899,510
	Cost of goods sold decrease		$100,490
	Hence, Net income increased by $ 100490
	Hence Marry will suggest to increase the percentage of completion to 40%
2.c	Bonus is depend on target profit and by increasing completion % their bonus also increase, If by increasing the percentage target proft will increase then they will con sider it other wise ignore it.