Rausher Industries began a new product line this year. Management wants a cost report for the current year and a budget for next year. The product requires processing in two departments. Materials are added at the beginning of the process in department 1. Department 2 finishes the product but adds no direct materials.

During the year work was begun on 12000 units in department 1, and 9000 of these units were transferred to department 2. The remaining 3000 units were 60 per cent complete with regard to conversion costs in department 1, which incurred $36000 in material costs and $14040 in conversion costs.

Department 2 completed and sent 7000 units to the finished goods warehouse. It ended the period with 2000 units 40 per cent complete with regard to department 2s conversion costs, which were $32760 for the period.

The plan for next year is to begin an additional 15000 units in department 1. Management expects to finish the year with 5000 units one-half converted in department 1. Department 2 is expected to complete 14000 units, and its ending inventory is expected to be 70 per cent complete. Materials are expected to be $48600, and conversion costs for departments 1 and 2 are expected to be $14545 and $59075 respectively.

Required

Prepare cost reports for the current year and a budgeted cost report for next year assuming the entity uses the following:

FIFO process costing

weighted average process costing.

The employee responsible for estimating the percentage completion had experience estimating completion percentages for one of Raushers other product lines. However, she is wondering whether she could improve the accuracy of her estimates. A colleague in another department suggested that she consider using techniques such as timing one unit through each department and identifying points in the production process where units appear to be 25 per cent complete, 50 per cent complete and so on.

Comment on whether the suggested method is likely to provide an accurate estimate of work in process.

List two advantages of improving the accuracy of the estimate. What might be a disadvantage?