The processing area under Mary's supervision started the year with 50,000 units in beginning WIP. During the year, 160,000 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 ($30,000,000 in conversion value and $9,375,000 in materials value). A total of $20,807,500 in costs ($18,000,000 in conversion costs and $2,807,500 in materials costs) were incurred in Mary's area during the period.

Tom Winthrop, the lead production supervisor, estimated that the units in ending inventory in Mary's area were 30% complete with respect to conversion costs, and all materials had been completely inserted in the process. If this estimate of the percentage completion is used, what would be the Cost of Goods Sold for the year? (Note: Since all units completed were also sold, in this case the cost of goods transferred out = Cost of Goods Sold.)

2.Gary is recommending that the completion percentage be adjusted by 10 percentage points in order to assist the team in making their bonus.

a. Calculate the Cost of Goods Sold if the ending inventory is 20% complete with respect to conversion costs. Would net income increase or decrease if this option were chosen over the original estimate of 30% completion percentage? How much is the increase or decrease?

b. Calculate the Cost of Goods Sold if the ending inventory is 40% complete with respect to conversion costs. Would net income increase or decrease if this option were chosen over the original estimate of 30% completion percentage? How much is the increase or decrease?

c. Based on your calculations, which percentage would you guess Gary is suggesting that Mary use for her ending inventory estimate?

3.Do you think Mary should go along with the request to alter estimates of the percentage completion for her production area at the end of the period? Why or why not?