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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

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

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

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).

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

Would this be ethical?

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

Solutions

Expert Solution

Weighted Average Method
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 = 630,000 - 150,000               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
FIFO Method
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 = 630,000 - 150,000               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
Changing ending work in process to 60 percent would reduce per unit cost as no of equivalent units will increase
This is unethical as we are manipulating the data to reduce costs and show better performance
No this is not successful as during next period they have to show heir % completion as 40% so cost per unit willincrease  

ekkarill92 answered 7 months ago
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