Case study - Process Costing Deadline: 16 November, 2020, 9:20 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 5% 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 $200,000 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, 1 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 inventories. During the year, 210,000 units were transferred in from the prior processing department and 200,000 units were completed and sold. Costs transferred in from the prior department totaled $39,375,000. No materials are added in the final processing department. A total of $20,807,500 of conversion cost was incurred in the final processing department during the year, Tom Winthrop estimated that the units in ending inventory in the final processing department were 30% complete with respect to the conversion costs of the final processing department. If this estimate of the percentage completion is used, the cost of Goods Sold would be $58,000,000 for the year. Gary Stevens is happy about this 30% estimated completion. He finds out that increasing the percentage completion would result in increasing reported net income. As production managers could get an additional bonus if the entire division meets or exceeds its target profit for the year. Required: 1. Under weighted average method, Please compute the equivalent unit and show the cost of goods sold $580,000 2. If the units in ending Inventory in the final processing department were 60% complete with respect to the conversion costs of the final processing department, how much is the cost of goods sold? If the estimated of completion is 20% to the conversion costs, how much is the cost of goods sold? 3. In answer (1) and (2), what is the relationship between completion percentage to the net income? How will Gary's bonus be affected? 4. As a management accountant, please make an advice to Mary James whether she should go along with Gary's request to alter estimates of the percentage completion? Is it ethical for her to go along with the change of estimated completion percentage? Why or why not