Case $4-20($Algo$)$ Ethics and the Manager, Understanding the Impact of Percentage Completion on

Profit$-$Weighted$-$Average Method $[$L$04-2,$ L$04-3,$ LO$4-4]$

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 $$158,460$ 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,

$300,000$ units were transferred in from the prior processing department and $278,000$ units were completed and sold. Costs

transferred in from the prior department totaled $$55,500,000.$ No materials are added in the final processing department. A total of

$$19,958,400$ of conversion cost was incurred in the final processing department during the year.

Required:

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?

Does Gary Stevens want the estimated percentage completion to be increased or decreased?

What percentage completion would result in increasing reported net operating income by $$158,460$ over the net operating income

that would be reported if the $25\%$ figure were used?Required $1$

Required $3$

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 less $$

Cost of goods soldGary 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 $$158,460$ 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