Stated another way:
EUs = (units transferred out) + (ending inventory) * (% complete)
For DM: 63,000 + 21,000*20% = 63,000 + 4,200 = $67,200
For CC: 63,000 + 21,000*10% = 63,000 + 2,100 = $65,100
8-21: Compute Equivalent Units—Ethical Issues: Aaron
Company.
Weighted Average Method
Units transferred out
Conversion
Materials
Costs
630,000
630,000
Equivalent units in ending inventory:
Materials: 0% x 120,000 units
0
Conversion costs: 40% x 120,000 units
Total equivalent units for all work done to date 630,000
Weighted Average Method
Units transferred out
Materials
630,000
Equivalent units in ending inventory:
Materials: 0% x 120,000 units
0
Conversion costs: 60% x 120,000 units
Total equivalent units for all work done to date 630,000
48,000
678,000
Conversion
Costs
630,000
72,000
702,000
8-21: Compute Equivalent Units—Ethical Issues—
cont’d
1. The change will reduce the unit cost for the units transferred to finished goods.
• $$$/(larger EUs)=smaller unit cost
• Larger % completion means higher EI cost
2. It is not ethical; there is no reason to believe the change reflects anything other
than a desire for reporting better results.
• What is violated in IMA Code?? (p. 23)
3. It is unlikely to be successful for long. An accounting system keeps track of
actual costs. If a manager postpones reporting them this period, they will be
reported next period or shortly thereafter.
Institute of Management Accountants Code of
Ethics
Competence
Confidentiality
Integrity
Credibility
Competence
Members have a responsibility to:
1. Maintain an appropriate level of professional expertise
by continually developing knowledge and skills.
2. Perform professional duties in accordance with
relevant laws, regulations, and technical standards.
3. Provide decision support information and recommendations
that are accurate, clear, concise, and timely.
4. Recognize and communicate professional limitations
or other constraints that would preclude responsible
judgment or successful performance of activity.
Confidentiality
Members have a responsibility to:
1. Keep information confidential except when disclosure
is authorized or legally required.
2. Inform all relevant parties regarding appropriate use
of confidential information.
3. Refrain from using confidential information for unethical
or illegal advantage.
4. Monitor subordinates’ activities to ensure compliance.
Integrity
Members have a responsibility to:
1. Mitigate actual conflicts of interest, regularly communicate
with business associates to avoid apparent conflicts of
interest. Advise all parties of any potential conflicts.
2. Refrain from engaging in any conduct that wouldprejudice
carrying out duties ethically.
3. Abstain from engaging in or supporting any activity that
might discredit the profession.
Credibility
Members have a responsibility to:
1. Communicate information fairly and objectively.
2. Disclose all relevant information that could reasonably
be expected to influence an intended user’s understanding
of the reports, analyses, or recommendations.
3. Disclose delays or deficiencies in information, timeliness,
processing, or internal controls in conformance with
organization policy and/or applicable law.
8-21 concluded
3. It is unlikely to be successful for long. An accounting system keeps track of
actual costs. If a manager postpones reporting them this period, they will be
reported next period or shortly thereafter.
Pr. 8-36 Steps 1 & 2
Pr. 8-36 Steps 3 & 4
Pr. 8-36 Step 5: Assign the costs
Pr. 3-42: Douglas Toys
Pr. 3-42: Douglas Toys
Pr. 3-42: Douglas Toys
Pr. 8-52: Operation Costing
8-52 cont’d
These costs, plus the cost of material, make up the cost of units completed
and the ending inventories of WIP. See next slide…
8-52 cont’d
The material costs per unit are:
Product
Material
Cost
Number of
Units
Unit Material
Cost
Rookie
$18,000 ÷
600
=
$ 30
Novice
17,280 ÷
480
=
36
Cost
goods:
Hikerof units transferred
13,050 to÷finished 290
Unit
Stitching
Expert
11,250
÷
150
Department
Product
Material
Unit Cost
Cost
=
Customizing
=
Department
Unit Cost
45
75 Unit Cost
Rookie
$30 +
$ 42
+
$ –0–
=
$ 72
Novice
36 +
42
+
36
=
114
Hiker
45 +
42
+
36
=
123
Expert
75 +
42
+
36
=
153
8-52 cont’d
Work-in-Process Ending Inventory, Stitching.
Rookie
Number
of Units
60

Unit
Cost
$30
Total Cost
$ 1,800
Novice
30

36
1,080
Hiker
20

45
900
Expert
30

75
2,250
Material cost
Total material
cost
$ 6,030
* 140 units, 40% complete
Conversion
costs
Total
56*

42
2,352
$ 8,382
Pr. 52 concluded
Customizing Department:.
Number of
Units
10

$36
Total Cost
360
Hiker
20

45
900
Expert
20

75
1,500
Material cost
Novice
Unit Cost
Total material
cost
$ 2,760
Conversion
costs
From
Stitching
50

42
2,100
From
Customizing
10*

36
360
* 50 units, 20% complete
Total conversion
costs
$2,460
Total
$ 5,220
Comments on 8-52
• The problem is a little odd in that there are two
process-costing-type departments and no job
costing department.
• It seems that the Customizing department would
take a job-costing approach. It might perform
truly custom work on the different models, such
as adding custom designs or corporate
trademarks, etc.
– If so, individual jobs would be tracked in the
Customizing department for truly custom work.