Gray Stevens and Mary James are production managers in thecustomer electronics division of General
Electronics Company, which has several dozen plants scattered inlocations throughout the world. Mary
manages the plant located in Des Moines, Iowa, while Gary managesthe plant in EI Segundo, California.
Production managers are paid a salary and get an additional bonusequal to 5% of their base salary if the
entire division meets or exceeds the target profit for the year.The bonus is determined in March after the
companyâs annual report has been prepared and issued toshareholders.
Shortly after the beginning of the New Year, Mary received a phonecall from Gary that went like this:
Gary: Howâs it going, Mary?
Mary: Fine, Gary. Howâs it going with you?
Gary: Great! I just got the preliminary profit figures for thedivision for the last year and we are with in
$200,000 of making the yearâs target profits. All we have to do isto pull a few strings, and weâll
be over the top!
Mary: What do you mean?
Gary: Well. One thing that would easy to change is your estimate ofthe percentage completion of your
ending work in progress inventories.
Mary: I donât know if I can do that, Gary. Those percentagecompletion figures are supplied by Tom
Winthrop, my lead supervisor, who I have always trusted to provideus with good estimates.
Besides, I have already sends the percentage completion figures tocorporate 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 notwant the bonus check, but rest
of us sure could use it.
The final processing department in Maryâs production facility beganthe year with no work in progress
inventories. During the year, 210,000 units were transferred infrom the prior processing department and
200,000 units were completed and sold. Cost transferred in from theprior department totaled
$39,375,000. No materials are added in final processing department.A total of $20,807,500 of conversion
cost was incurred in the final processing department during theyear.
Required:
1. Tom Winthrop estimated that the units in the ending inventory inthe final processing department
were 30% complete with respect to conversion costs of finalprocessing department. If this
estimate of percentage completion is used, what would be the costof goods sold for the year?
2. Does Gary Stevens want the estimated percentage to be increasedof decreased? Explain why?
3. What percentage completion would result in increasing reportednet operating income by
$200,000 over the net operating income that would be reported ifthe 30% figure were used?
4. Do you think Mary James should go along with the request toalter estimates of percentage
completion?
5. If you are the CEO of the company, what do you think when youknow this issue? Any action to
take?
Gray Stevens and Mary James are production managers in thecustomer electronics division of General
Electronics Company, which has several dozen plants scattered inlocations throughout the world. Mary
manages the plant located in Des Moines, Iowa, while Gary managesthe plant in EI Segundo, California.
Production managers are paid a salary and get an additional bonusequal to 5% of their base salary if the
entire division meets or exceeds the target profit for the year.The bonus is determined in March after the
companyâs annual report has been prepared and issued toshareholders.
Shortly after the beginning of the New Year, Mary received a phonecall from Gary that went like this:
Gary: Howâs it going, Mary?
Mary: Fine, Gary. Howâs it going with you?
Gary: Great! I just got the preliminary profit figures for thedivision for the last year and we are with in
$200,000 of making the yearâs target profits. All we have to do isto pull a few strings, and weâll
be over the top!
Mary: What do you mean?
Gary: Well. One thing that would easy to change is your estimate ofthe percentage completion of your
ending work in progress inventories.
Mary: I donât know if I can do that, Gary. Those percentagecompletion figures are supplied by Tom
Winthrop, my lead supervisor, who I have always trusted to provideus with good estimates.
Besides, I have already sends the percentage completion figures tocorporate 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 notwant the bonus check, but rest
of us sure could use it.
The final processing department in Maryâs production facility beganthe year with no work in progress
inventories. During the year, 210,000 units were transferred infrom the prior processing department and
200,000 units were completed and sold. Cost transferred in from theprior department totaled
$39,375,000. No materials are added in final processing department.A total of $20,807,500 of conversion
cost was incurred in the final processing department during theyear.
Required:
1. Tom Winthrop estimated that the units in the ending inventory inthe final processing department
were 30% complete with respect to conversion costs of finalprocessing department. If this
estimate of percentage completion is used, what would be the costof goods sold for the year?
2. Does Gary Stevens want the estimated percentage to be increasedof decreased? Explain why?
3. What percentage completion would result in increasing reportednet operating income by
$200,000 over the net operating income that would be reported ifthe 30% figure were used?
4. Do you think Mary James should go along with the request toalter estimates of percentage
completion?
5. If you are the CEO of the company, what do you think when youknow this issue? Any action to
take?
Related questions
| 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, Iowa, 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 companyâs 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: | Howâs it going, Mary? |
| Mary: | Fine, Gary. Howâs it going with you? |
| Gary: | Great! I just got the preliminary profit figures for the division for last year and we are within $75,680 of making the yearâs target profits. All we have to do is pull a few strings, and weâll 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 donât 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 Maryâs production facility began the year with no work in process inventories. During the year, 380,000 units were transferred in from the prior processing department and 344,000 units were completed and sold. Costs transferred in from the prior department totaled $104,500,000. No materials are added in the final processing department. A total of $25,769,000 of conversion cost was incurred in the final processing department during the year. What percentage completion would result in increasing reported net operating income by $75,680 over the net operating income that would be reported if the 25% figure were used? (Do not round your cost per unit calculations. Round your intermediate calculations to the nearest dollar amount and final answer to the nearest whole percent.) percentage completion _______% |
