Chapter 21 Discussion Case
Rene Alverez knew she was in over her head soon after she took
the job. Even so, the opportunity for promotion comes along rarely
and she believed that she would grow into it. Ms. Alverez is the
cost accounting specialist assigned to the finishing department of
Standard Tool Company. Bill Sawyer, the manager of the finishing
department, knows exactly what he is doing. In each of the three
years he has managed the department, the cost per unit of product
transsferred out of his Work in Process Inventory account has
declined. His ability to control cost if highly valued, and it is
widely believed that he will be the successor to the plant manager,
who is being promoted to manufacturing vice president. One more
good year would surely seal the deal for Mr. Sawyer. It was little
wonder that Ms. Alverez was uncomfortable in challenging Mr,
Sawyer’s estimate of the percentage of completion of the
department’s ending inventory. He contended that the inventory was
60 percent complete, but she believed that it was only about 40
percent complete. After a brief altercation, Ms. Alverez agreed to
sign off on Mr. Sawyer’s estimate. The truth was that she believed
she was right, but she did not know how to support her position.
Besides, Mr. Sawyer was about to be named the plant manager, and
she felt it unwise to challenge such an important person. The
department had beginning inventory of 5,500 unit of product and it
started 94,500 units during the period. It transferred out 90,000
units during the period. Total transferred-in and
production cost for the period was $902,400. This amount
included the cost in beginning inventory plus additional cost
incurred during the period. The target (standard) cost per unit is
$9.45.
Required:
a. Determine the equivalent cost per unit, assuming that the
ending inventory is considered to be 40 percent complete.
b. Determine the equivalent cost per unit, assuming that the
ending inventory is considered to be 60 percent complete.
c. Comment on Mr. Sawyer’s motives for establishing the
percentage of completion at 60 percent rather than 40
percent.
d. Assuming that Ms. Alverez is a certified management
accountant, would informing the chief accountant of her dispute
with Mr. Sawyer violate the confidentiality standards of ethical
professional practice? (IMA Statement of Ethical Professional
Practice)
e. Did Ms. Alverez violate any of the standards of ethical
professional practice? (IMA
Statement of Ethical Professional Practice)