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Part II: Impact of accounting estimates (8 marks) Della Street is the manager of the retail sales department, which is the department that receives product
Part II: Impact of accounting estimates (8 marks) Della Street is the manager of the retail sales department, which is the department that receives product transferred out from the production department. She approached Emily Dodson, the manager of the production department and had the following conversation: Della: You know that net income for September was just $5,000 lower than it needed to be for all of us managers to get our monthly bonus. How certain are you that the work-in-process inventory at the end of the month was 25% completed? Emily: Pretty certain. We estimated using the methods we always use. Della: If you could adjust your estimates, we just might be able to get that bonus. Required: (continuation from part I) e) Would it improve net income if the percentage of completion was higher than 25% or lower than 25%? Explain. (3 marks) f) Emily noticed that normal spoilage was reported at 4.5% of good units, but based on recent experience, she thinks it could be lowered to 2.5%. Would changing this estimate improve net income? Explain. (2 marks) g) Do you have any ethical concerns with Della's comments to Emily? Briefly explain the steps you would take to resolve any concerns you have. (3 marks) Part II: Impact of accounting estimates (8 marks) Della Street is the manager of the retail sales department, which is the department that receives product transferred out from the production department. She approached Emily Dodson, the manager of the production department and had the following conversation: Della: You know that net income for September was just $5,000 lower than it needed to be for all of us managers to get our monthly bonus. How certain are you that the work-in-process inventory at the end of the month was 25% completed? Emily: Pretty certain. We estimated using the methods we always use. Della: If you could adjust your estimates, we just might be able to get that bonus. Required: (continuation from part I) e) Would it improve net income if the percentage of completion was higher than 25% or lower than 25%? Explain. (3 marks) f) Emily noticed that normal spoilage was reported at 4.5% of good units, but based on recent experience, she thinks it could be lowered to 2.5%. Would changing this estimate improve net income? Explain. (2 marks) g) Do you have any ethical concerns with Della's comments to Emily? Briefly explain the steps you would take to resolve any concerns you have
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