Business Assignment 5 - Percentage Completion The two worksheets show the produc
ID: 2425610 • Letter: B
Question
Business Assignment 5 - Percentage Completion The two worksheets show the production report for the Tropical Break corporation. Assume you are the cost accountant at Tropical Break. The production department tells you that the units in work in process are 25% complete for conversion costs and you prepare the production report accordingly. The report is shown in the worksheet labeled "Process Cost Report 25%". Joe from Sales tells you that the production department is incorrect and that work in process is 40% complete for conversion costs. You know that Joe receives a bonus based upon the operating income of the company. You revise the production report. The report is shown in the worksheet labeled, "Process Cost Report 40%." Assume that all goods that are completed and transferred are sold and that sales for the year were $80,000,000. Req.
1 Complete the following schedule (4 points): Using 25% Using 40% Completion Completion Sales Cost of goods sold Gross profit Req.
2: Why does Joe want you to use the 40% completion number? (2 points) Req.
3: It is interesting to note that even though you are a cost accountant, you can still impact the operating income of the company. As a cost accountant, what should you do in this situation? Use 2 complete sentences. (2 points) Req.
4: Read the information about Rynco Scientific Corporation included below. Does this change your answer to #3 above? What can you conclude about the importance of the percentage completion number? Use complete sentences. (2 points).
cmaprepcourse.com/wp-content/uploads/2012/07/process_costing.doc
Explanation / Answer
1.
The goods under WIP as per process cost report are 25% complete and as per production department and as per Joe sales person the goods under WIP for conversion cost are 40% complete.
The sales of the company are $80,000,000 and we are assuming the gross profit of the company as 20% on sales.
If the sales are $80,000,000 and the gross profit is 20% , then the cost of goods sold would be as under:
The schedule showing the completion of sales cost of goods sold and gross profit using 25% of the conversion cost is as under:
Particulars
Direct Materials (100% Complete)
Conversion cost
(25% Complete)
Sales
$80,000,000
$80,000,000
$20,000,000
Cost of goods sold
$64,000,000
$64,000,000
$16,000,000
Profit
$16,000,000
$16,000,000
$4,000,000
The schedule showing the completion of sales cost of goods sold and gross profit using 40% of the conversion cost is as under:
Particulars
Direct Materials (100% Complete)
Conversion cost
(40% Complete)
Sales
$80,000,000
$80,000,000
$32,000,000
Cost of goods sold
$64,000,000
$64,000,000
$25,600,000
Profit
$16,000,000
$16,000,000
$6,400,000
2.
The company has a policy to pay bonus on the operating income of the company to Joe. Therefore if the cost shows the percentage of completion of conversion cost as 40% then the profit will be shown as $6,400,000 instead of $4,000,000 (if the percentage of completion of conversion cost used as 25%) and he will earn more bonus on the profits.
3.
As a cost accountant I will rely on the production department information and rely on the process cost report as 25% instead of Joe’s information. And I will also check the data received from the production department to judge the reliability of information. The financial statement should be prepared by the correct information data so that it can reflect the true and correct position of the company.
4.
Overstating of state of ending inventory will increases the cost of inventory which will affected in overstating gross profit and the net income. Ryno has overstated the cost of ending inventory due to which the profit also overstated due to which the financial statement of the company showing understated losses.
My answer will be same as given in point 3 above.
The financial statement should show the correct picture of the company. Therefore the data and the information used for preparation of financial statement should be correct and reliable.
Particulars
Direct Materials (100% Complete)
Conversion cost
(25% Complete)
Sales
$80,000,000
$80,000,000
$20,000,000
Cost of goods sold
$64,000,000
$64,000,000
$16,000,000
Profit
$16,000,000
$16,000,000
$4,000,000
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.