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Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50...

Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50 percent. The following information is available for physical units during March.

Work in process, March 1 (60% complete as to conversion costs) 150,000
Units started in March 600,000
Units transferred to Finishing Department in March 630,000
Work in process, March 31 (40% complete as to conversion costs) 120,000

Required

  1. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method.

  2. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

  3. The company president has been under considerable pressure to increase income. He tells the controller to change the estimated completion for ending work in process to 60 percent (from 40 percent).

    1. What effect will this change have on the unit costs of units transferred to finished goods in March?

    2. Would this be ethical?

    3. Is this likely to be a successful strategy for affecting income over a long period of time? Ok

Solutions

Expert Solution

a)
Statement of Equivalent production
Particulars Direct Materials %completion Equivalent mat Conversion %completion Equivalent Conv
Opening WIP            150,000.00 100%               150,000.00            150,000.00 100%               150,000.00
Units started and completed = 630000 - 150000            480,000.00 100%               480,000.00            480,000.00 100%               480,000.00
ending WIP            120,000.00 0%                                 -              120,000.00 40%                 48,000.00
Equivalent Units               630,000.00               678,000.00
b)
Statement of Equivalent production
Particulars Direct Materials %completion Equivalent mat Conversion %completion Equivalent Conv
Opening WIP            150,000.00 0%                                 -              150,000.00 40%                 60,000.00
Units started and completed = 630000 - 150000            480,000.00 100%               480,000.00            480,000.00 100%               480,000.00
Ending WIP            120,000.00 0%                                 -              120,000.00 40%                 48,000.00
Equivalent Units               480,000.00               588,000.00
c)
If ending WIP is changed to 60% then materials completion would be 100% in Ending WIP. Thus Equivalent unit of materials and conversion would be increased. Thus cost per equivalent unit of material and conversion would be lower
unit costs of units transferred to finished goods in March would be lower as total cost would be same but equivalent units would be higher
It is unethical practice to manipulate results .
No it would not be succesful strategy

ekkarill92 answered 1 year ago
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