Gary Stevens and Mary James are production managers in the C

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, lowa, while Gary manages the plant in El Segundo, California Production managers are paid a salary and get an additional bonus equal to 10% 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 $16,050 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 inventory. During the year, 340,000 units were transferred in from the prior processing department and 321,000 units were completed and sold. Costs transferred in from the prior department totaled $65,960,000. No materials are added in the final processing department. A total of $23,258,550 of conversion cost was incurred in the final processing department during the year. Tom Winthrop estimated that the units in ending work in process 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? (Round cost per unit to 2 decimal places. Do not round other intermediate calculations. Round your final answer to the nearest whole dollar amount.) Show lessA Cost of goods sold Does Gary Stevens want the estimated percentage completion to be increased or decreased? Increased Decreased What percentage completion would result in increasing reported net operating income by $16,050 over the net operating income that would be reported if the 25% figure were used? (Round cost per unit to 2 decimal places. Do not round other intermediate calculations. Round your final answer to 2 decimal places.) Percentage completion

Solution

Equivalent untis: Transferred in Conversion Units completed and sold 321000 321000 Ending work in process (340000-321000) 19000 4750 (19000*100%) (19000*25%) Equivalent units of production 340000 325750 Cost per equivalent units=Total cost/Equivalent units of production Transferred in Conversion Cost of beginning work-in-process 0 0 Cost added 65960000 23258550 Total cost 65960000 23258550 Equivalent units of production 340000 325750 Cost per equivalent units 194 71.4 Cost of goods sold=Units*cost=321000*(194+71.4)=$ 85193400 Estimated percentage completion to be increased If percentage completion increased then equivalent units will increase and it results in lower cost per unit and leads to lower cost of goods sold. Lower cost of goods sold will result in higher net income. Increase in operating income=Decrease in cost of goods sold=$16050 Target cost of goods sold=85193400-16050=$ 85177350 Cost of goods sold=Units*cost 85177350=321000*Cost Cost per equivalent unit=85177350/321000=265.35 Conversion cost per equivalent units=265.35-194=71.35 Target equivalent units of production=23258550/71.35=325978 Target equivalent units of ending work in process=325978-321000=4978 Percentage of completion required=4978/19000=26.20% Increase in percentage required=26.20%-25%=1.20%