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Solutions Manual, Chapter 4 31
Problem 4-16 (continued)
5.
Cost Reconciliation
Costs to be accounted for:
Cost of be
g
innin
g
work in process inventory
($1,500 + $7,200) ………………………………. $ 8,700
Costs added to production durin
g
the period
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32 Managerial Accounting, 16th Edition
Problem 4-17 (45 minutes)
Weighted-Average Method
1. a. Work in Process
—
Refinin
g
Department……… 495,000
b. Work in Process
—
Refinin
g
Department……… 72,000
—
g
A
d. Work in Process
—
Refinin
g
Department……… 181,000
—
g
e. Work in Process
—
Blendin
g
Department …….. 740,000
—
g
f. Finished Goods ……………………………………. 950,000
—
g
g
.
A
ccounts Receivable …………………………….. 1,500,000
Sales ……………………………………………. 1,500,000
—
g
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Solutions Manual, Chapter 4 33
Problem 4-17 (continued)
2.
A
ccounts Receivable Raw Materials
Work in Process
Refining Department
Work in Process
Blending Department
Bal. 38,000 (e) 740,000 Bal. 65,000 (f) 950,000
Finished Goods Manufacturin
g
Overhead
Bal. 20,000 (
g
) 900,000 (c) 225,000 (d) 223,000
A
ccounts Payable Salaries and Wa
es Payable
Sales Cost of Goods Sold
g
g
g
Problem 4-18 (30 minutes)
Weighted-Average Method
1. Equivalent units of production
Material
s
Conversio
n
s
n
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Solutions Manual, Chapter 4 35
Case 4-19 (45 minutes)
Weighted-Average Method
1. The revised computations follow:
Equivalent units of production:
T
ransferred
In Costs Materials Conversion
T
ransferred to finished
g
oods ……………………………. 1,800 1,800 1,800
Equivalent units in endin
g
work in process:
Cost per equivalent unit:
T
ransferred
In Costs Materials Conversion
Cost of be
g
innin
g
work in process………………..…….. $ 4,068 $1,980 $ 2,160
Cost added durin
g
the period ……………………………. 17,940 6,210 13,920
T
T
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36 Managerial Accounting, 16th Edition
Case 4-19 (continued)
T
ransferred
In Costs Materials Conversion Total
Endin
g
work in process inventory:
Equivalent units (see above) ……………. 600 0 210
Cost per equivalent unit ………………………. $9.17 $4.55 $8.00
2. The unit cost computed above is $21.72 (= $9.17 + $4.55 + $8.00) versus $25.71 on the original
report for the units completed and transferred to finished goods. The unit cost on the original report
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Solutions Manual, Chapter 4 37
Case 4-20 (90 minutes)
This case is difficult—particularly part 3, which requires analytical skills.
Because there are no beginning inventories, it makes no difference
1. Computation of the Cost of Goods Sold:
T
ransferred I
n
Conversio
n
Units completed and sold ……………..….. 200,000 200,000
Equivalent units in endin
g
work in
process inventory:
T
ransferred I
n
Conversio
n
Cost of be
g
innin
g
work in process………. $ 0 $ 0
Cost added durin
g
the period ……………. 39,375,000 20,807,500
2. The estimate of the percentage completion of ending work in process
inventories affects the unit costs of finished goods and therefore the
cost of goods sold. Gary Stevens would like the estimated percentage
3. Increasing the percentage of completion can increase net operating
income by reducing the cost of goods sold. To increase net operating
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38 Managerial Accounting, 16th Edition
Case 4-20 (continued)
The percentage of completion, X, affects the cost of goods sold by its
effect on the unit cost, which can be determined as follows:
And the cost of goods sold can be computed as follows:
Cost of goods sold = 200,000 × Unit cost
Because the cost of goods sold must be reduced down to $57,800,000,
$20,807,500 = $289.00 – $187.50
200,000 + 10,000X
$20,807,500 = $101.50
200,000 + 10,000X
Thus, changing the percentage completion to 50% will decrease cost of
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Solutions Manual, Chapter 4 39
Case 4-20 (continued)
3. (continued)
Computation of the Cost of Goods Sold:
T
ransferred I
n
Conversio
n
Units completed and sold …………………. 200,000 200,000
Equivalent unit in endin
g
work in process
inventory:
T
ransferred I
n
Conversio
n
Cost of be
g
innin
g
work in process………. $ 0 $ 0
Cost added durin
g
the period ……………. 39,375,000 20,807,500
4. Mary is in a very difficult position. Collaborating with Gary Stevens in
subverting the integrity of the accounting system is unethical by almost
any standard. To put the situation in its starkest light, Stevens is
suggesting that the production managers lie in order to get their bonus.
Having said that, the peer pressure to go along in this situation may be
intense. It is difficult on a personal level to ignore such peer pressure.
Moreover, Mary probably prefers not to risk alienating people she might
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40 Managerial Accounting, 16th Edition
Case 4-20 (continued)
From a broader perspective, if the net profit figures reported by the
managers in a division cannot be trusted, then the company would be
The company should perhaps reconsider how it determines the bonus. It
is quite common for companies to pay an “all or nothing” bonus
contingent on making a particular target. This inevitably creates
powerful incentives to bend the rules when the target has not quite
been attained. It might be better to have a bonus without this “all or