Rene Alvarez knew she was over her head soon after she took the job.
Read the scenario and complete the activity below :
Rene Alvarez knew she was over her head soon after she took the job. Even so the opportunity for promotion comes along rarely and she believed that she would grow into it. Miss Alvarez is the cost accounting specialist assigned to the finishing department of Standard Tool Company.
Bill Sawyer the manager of the finishing department knows exactly what he is doing. In each of the three years he has managed department the cost per unit of product transferred out of his Work in Process Inventory account has declined. His ability to control cost is highly valued and is widely believed that he will be the successor to the plant manager who is being promoted to manufacturing vice president. One more good year will surely seal the deal for Mr. Sawyer.
It was little wonder that Ms. Alvarez was uncomfortable in challenging Mr. Sawyer’s estimate of the percentage of completion of the department’s ending inventory. He contended that the inventory was 60% complete but she believed that it was only about 40% complete.
After a brief altercation Ms. Alvarez agreed to sign off on Mr. Sawyer’s estimate. The truth was that although she believes she was right she did not know how to support her position. Besides Mr. Sawyer was about to be named plant managers and she felt it unwise to challenge such an important person.
The department had beginning inventory of 5,500 units of product and it started 94,500 units during the period. It transferred out 90,000 units during the period. Total transferred-in and production cost for the period was $902,400. This amount included the cost in beginning inventory plus additional cost incurred during the period. The target (standard) cost per unit is $9.45
Compute the equivalent cost per unit, assuming the ending inventory is considered to be 40 percent complete.
Compute the equivalent cost per unit, assuming the ending inventory is considered to be 60 percent complete.
Write a 350-word summary of your calculations and findings. Comment on Mr. Sawyer’s motives for establishing the percentage of completion at 60 percent rather than 40 percent.
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