The Paper
1. Jean Jackson estimated that the units in ending inventory in the final processing department were 25% 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?
Since 270,000 units were transferred in the processing department and 250,000 were completed and sold, this leaves 20,000 units left in the ending inventory. Of the 20,000 units left in inventory, 25% of the conversion cost required to complete the units had already been incurred. The partially completed units need to be computed into equivalent units, which are the number of completed units that could have been produced from the work that was put into all the partially completed units (Garrison, Noreen & Brewer, 2012).
Equivalent units = 20,000 x 25%, so the equivalent units is 5,000
Equivalent units of production = 250,000 + 5000 = 255,000
Cost per equivalent unit = 49,221,000 + 16,320,000 = 65,541,000/ 255,000= 257.02 per unit
257.02 x 250,000= 64,255,882
2. Does Thad Kostowski want the estimated percentage completion to be increased or decreased? Explain why.
Thad Kostowski wanted the estimated percentage of completion to be increased in order to make it seem as if the cost of goods sold is lower.
3. What percentage completion figure would result in increasing the reported net operating income by $62,500 over the net operating income that would be reported if 25% figure were used?
4. Do you think Carol Lee should go along with the request to alter estimated of the percentage completion? Why or why not?
Carol Lee should not go along with the request because it would be unethical. Thad Kostowski is already being unethical by asking her to alter information and if she goes along with his request she is bringing her lead supervisor, Jean Jackson, into the unethical practices as well. In other words, if she says yes
Since 270,000 units were transferred in the processing department and 250,000 were completed and sold, this leaves 20,000 units left in the ending inventory. Of the 20,000 units left in inventory, 25% of the conversion cost required to complete the units had already been incurred. The partially completed units need to be computed into equivalent units, which are the number of completed units that could have been produced from the work that was put into all the partially completed units (Garrison, Noreen & Brewer, 2012).
Equivalent units = 20,000 x 25%, so the equivalent units is 5,000
Equivalent units of production = 250,000 + 5000 = 255,000
Cost per equivalent unit = 49,221,000 + 16,320,000 = 65,541,000/ 255,000= 257.02 per unit
257.02 x 250,000= 64,255,882
2. Does Thad Kostowski want the estimated percentage completion to be increased or decreased? Explain why.
Thad Kostowski wanted the estimated percentage of completion to be increased in order to make it seem as if the cost of goods sold is lower.
3. What percentage completion figure would result in increasing the reported net operating income by $62,500 over the net operating income that would be reported if 25% figure were used?
4. Do you think Carol Lee should go along with the request to alter estimated of the percentage completion? Why or why not?
Carol Lee should not go along with the request because it would be unethical. Thad Kostowski is already being unethical by asking her to alter information and if she goes along with his request she is bringing her lead supervisor, Jean Jackson, into the unethical practices as well. In other words, if she says yes