Question:
Compute Equivalent Units: Ethical Issues
Aaron Company has a process costing system. All materials are introduced when conversion costs reach 50 percent. The following information is available for physical units during March.
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Work in process, March 1 (60% complete as to conversion costs)
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150,000
|
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Units started in March
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600,000
|
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Units transferred to Finishing Department in March
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630,000
|
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Work in process, March 31 (40% complete as to conversion costs)
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120,000
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Required
a. Compute the equivalent units for materials costs and for conversion costs using the weightedaverage method.
b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.
c. The company president has been under considerable pressure to increase income. He tells the controller to change the estimated completion for ending work in process to 60 percent (from 40 percent).
1. What effect will this change have on the unit costs of units transferred to finished goods in March?
2. Would this be ethical?
3. Is this likely to be a successful strategy for affecting income over a long period of time?