Pacific Siding Incorporated produces synthetic wood siding used in the construction of residential and commercial buildings. Pacific Siding's fiscal year ends on March 31, and the weighted-average method is used for the company's process costing system. Financial results for the first 11 months of the current fiscal year (through February 28) are well below the expectations of management, owners, and creditors. Halfway through the month of March, the chief executive officer (CEO) and the chief financial officer (CFO) ask the controller to estimate the production results for the month of March in the form of a production cost report (the company has only one production department). This report is shown below: Data Entry Section Unit Information Percent Complete Direct Units (board feet) Materials Direct Labor Overhead Units in beginning WIP inventory (all completed this period) 360,000 n/a n/a n/a Units started and completed during the period 195,000 100% 100% 100% Units started and partially completed during the period 81,000 30 70 20 Direct Cost Information materials Direct labor Overhead Costs in beginning WIP inventory $87,000 $101,000 $161,000 Costs incurred during the period 66,000 86,000 146,000 PACIFIC SIDING INCORPORATED Preliminary Production Cost Report Month Ending March 31 Step 1: Summary of Physical Units and Equivalent Unit Calculations Units to be accounted for: Units in beginning WIP inventory Units started during the period Total units to be accounted for Physical Units 360,000 276,000 636,000 Units accounted for: Units completed and transferred out Units in ending WIP inventory Total units accounted for Physical Units 555,000 81,000 636,000 Equivalent Units Direct Direct Materials Labor Overhead 555,000 555,000 555,000 24,300 56,700 16,200 579,300 611,700 571,200 Step 2: Summary of Costs to Be Accounted for Costs to be accounted for: Costs in beginning WIP inventory Costs incurred during the period Total costs to be accounted for Direct Direct Materials Labor Overhead Total $ 87,000 $101,000 $161,000 $349,000 66.000 86,000 146,000 298,000 $ 153,000 $187,000 $307,000 $647,000 Step 3: Calculation of Cost per Equivalent Unit Total costs to be accounted for (a) Total equivalent units accounted for (b) Cost per equivalent unit (a) + (6) Direct Direct Materials Labor Overhead Total $ 153,000 $187,000 $307,000 579,300 611,700 571,200 $ 0.2641 $ 0.3057 $ 0.5375 $ 1.1073 Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory Costs assigned to units transferred out Costs assigned to ending WIP inventory Total costs accounted for Direct Direct Materials Labor Overhead Total $ 146,582 $169,667 $298,293 $614,542 6,418 17,333 8,707 32,458 $647,000 Armed with the preliminary production cost report for March, and knowing that the company's production is well below capacity, the CEO and CFO decide to produce as many units as possible for the last half of March, even though sales are not expected to increase any time soon. The production manager is told to push his employees to get as far as possible with production, thereby increasing the percentage of completion for ending WIP inventory. However, since the production process takes three weeks to complete, all of the units produced in the last half of March will be in WIP inventory at the end of March. Required: b. Using the following assumptions, prepare a revised estimate of production results in the form of a production cost report for the month of March. Assumptions based on the CEO and CFO request to boost production: 1. Units started and partially completed during the period will increase to 280,000 (from the initial estimate of 81,000). This is the projected ending WIP inventory at March 31. Percentage of completion estimates for units in ending WIP inventory will increase to 80 percent for direct materials, 85 percent for direct labor, and 90 percent for overhead. 2. Costs incurred during the period will increase to $106,000 for direct materials $113,000 for direct labor, and $161,000 for overhead (Note: most overhead costs are fixed). 3. All units completed and transferred out during March are sold by March 31. (Do not intermediate "Cost per equivalent unit " answer. Round other intermediate calculations to the nearest whole dollar.) Revised Production Cost Report Month Ending March 31 Physical Units Units to be accounted for Units in beginning WIP inventory Units started during the period Total units to be accounted for 0 Direct Materials Equivalent Units Direct Labor Overhead Units accounted for Units completed and transferred out Units in ending WIP inventory Total units accounted for 0 0 0 Direct Materials Direct Labor Overhead Total Costs to be accounted for Costs in beginning WIP inventory Costs incurred during the period Total costs to be accounted for $ 0 $ 0 $ 0 $ Direct Materials Direct Labor Overhead Total Total costs to be accounted for Total equivalent units accounted for Cost per equivalent unit 0 0 0 $ 0.0000 Direct Materials Direct Labor Overhead Total Costs assigned to units transferred out Costs assigned to ending WIP inventory Total costs accounted for $ 0 0 $ 0 0 c. Compare your new production cost report with the one prepared by the controller. How much do you expect profit to increase as a result of increasing production during the last half of March? Increasing profit d. Is the request made by the CEO and CFO ethical? Yes . No