Gary and Mary are production managers in Sonora, which has several dozen plants scattered in locations throughout the world. There are two plants in Singapore. Mary manages the finishing plant in Bedok while Gary manages the mixing plant in Simei. Production managers are paid a salary and get an additional bonus equal to 2 months of monthly salary if the division meets or exceeds its gross profit target for the year. Sonora pays its production managers lower than the market and provides higher bonuses. Typically, on an annual basis, its production managers pay including bonus will be 10% higher than the market. However, without bonuses production managers will earn 10% lower than the market. Sonora believes this method of remuneration can provide incentive for production managers to achieve efficiency that will translate to higher gross profit for the company. Incentive pay like bonuses are included in HQ admin expenses. A division in Sonora consists of all manufacturing plants in a country. The bonus is determined in May after the companys annual report has been prepared and issued to shareholders.

Mary received a phone call from Gary that went like this:

Gary: Happy CNY! Hows it going, Mary?

Mary: Everything is fine, Gary. Hows it going with you?

Gary: Great! I just got preliminary profit figures for the division for last year and we are within $15,000 of making our divisions target gross profit and you know what that means bonus! All we have to do is pull a few strings, and well meet the target!

Mary: Huh? What do you mean?

Gary: You see we need to achieve the target gross profit but are a little short Well, your estimate for the percentage completion of your ending work in process inventories for March can make the difference to the profit for the year!

Mary: I dont know if I can do that, Gary. Those percentage completion figures are supplied by Tom, my lead supervisor, who I have always trusted to provide reasonable estimates every month. Besides, I have already sent the percentage completion figures to corporate headquarters.

Gary: You can always tell them there was an error and you have the correct figure now. Think about it for a while, Mary. All of us managers are all doing as much as we can to pull this bonus out of the hat. You may not want the bonus cheque but the rest of us can sure use it. I have a daughter getting married this year. We are so close to it!

Marys Bedok plant began the month of March with no work in process inventory. During the month, 182,000 units were transferred from the Mixing plant in Simei. In March 160,000 units were completed and sold. The total cost incurred in the Finishing plant was $658,328 (consisting of $208,788 conversion costs). Material is added at the start of the manufacturing process and conversion costs added evenly throughout the process. WIP at the end of March was 20% complete in respect of conversion costs and there were no spoilage units in the Finishing plant for March.

Question:

Besides possible ethical issues, provide five (5) other reasons based on your understanding of product costing that suggests Mary should not go along with the request to adjust the estimates of percentage completion of ending WIP for March to achieve the target gross profit for the division.

* Please do not include answers that have ethical issues as a reason, thank you!

* Note that this question is from a managerial accounting paper.