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Stated another way:EUs = (units transferred out) + (ending inventory) * (% complete)For DM: 63,000 + 21,000*20% = 63,000 + 4,200 = $67,200For CC: 63,000 + 21,000*10% = 63,000 + 2,100 = $65,100

8-21: Compute Equivalent UnitsEthical Issues: Aaron Company.

Weighted Average Method

Materials

Conversion CostsUnits transferred out630,000630,000Equivalent units in ending inventory:Materials: 0% x 120,000 units0Conversion costs: 40% x 120,000 units48,000Total equivalent units for all work done to date630,000678,000Weighted Average Method

Materials

Conversion CostsUnits transferred out630,000630,000Equivalent units in ending inventory:Materials: 0% x 120,000 units0Conversion costs: 60% x 120,000 units72,000Total equivalent units for all work done to date630,000702,000

8-21: Compute Equivalent UnitsEthical Issuescontd

The change will reduce the unit cost for the units transferred to finished goods.$$$/(larger EUs)=smaller unit costLarger % completion means higher EI costIt 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)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 EthicsCompetenceConfidentialityIntegrityCredibility

Appendix: Institute of Management Accountants Code of Ethics

The Institute of Management Accountants Code of Ethics addresses four standards: competence, confidentiality, integrity, and credibility.CompetenceMembers have a responsibility to:1.Maintain an appropriate level of professional expertiseby continually developing knowledge and skills.2.Perform professional duties in accordance withrelevant laws, regulations, and technical standards.3.Provide decision support information and recommendationsthat are accurate, clear, concise, and timely.4.Recognize and communicate professional limitationsor other constraints that would preclude responsiblejudgment or successful performance of activity.

The competence standard addresses members responsibilities related to the level of professional competence, the performance of professional duties, and the preparation of reports and recommendations.ConfidentialityMembers have a responsibility to:1.Keep information confidential except when disclosureis authorized or legally required.2.Inform all relevant parties regarding appropriate useof confidential information.3.Refrain from using confidential information for unethicalor illegal advantage.4.Monitor subordinates activities to ensure compliance.

The confidentiality standard requires members to refrain from disclosing confidential information, to inform subordinates regarding the confidentiality of information acquired, and to refrain from using confidential information for personal gain. IntegrityMembers have a responsibility to:1.Mitigate actual conflicts of interest, regularly communicatewith business associates to avoid apparent conflicts ofinterest. Advise all parties of any potential conflicts.2.Refrain from engaging in any conduct that wouldprejudicecarrying out duties ethically.3.Abstain from engaging in or supporting any activity thatmight discredit the profession.

The integrity standard addresses conflict of interest, the communication of unfavorable as well as favorable information, and the members responsibility to the profession.CredibilityMembers have a responsibility to:1.Communicate information fairly and objectively.2.Disclose all relevant information that could reasonablybe expected to influence an intended users understandingof the reports, analyses, or recommendations.3.Disclose delays or deficiencies in information, timeliness,processing, or internal controls in conformance withorganization policy and/or applicable law.

And finally, the credibility standard refers to members responsibility to be fair and objective and to disclose all relevant information. 8-21 concluded3. 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 contd

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 contd

ProductMaterial CostNumber of UnitsUnit Material CostRookie$18,000600=$ 30Novice17,280480=36Hiker13,050290=45Expert11,250150=75The material costs per unit are:

ProductUnitMaterial CostStitching Department Unit CostCustomizing Department Unit CostUnit CostRookie$30+$ 42+$ 0= $ 72Novice36+42+36=114Hiker45+42+36=123Expert75+42+36= 153Cost of units transferred to finished goods:

8-52 contd

Material costNumber of UnitsUnit CostTotal CostRookie60$30$ 1,800Novice30361,080Hiker2045900Expert30752,250Total material cost$ 6,030Conversion costs56*422,352Total$ 8,382Work-in-Process Ending Inventory, Stitching.

* 140 units, 40% complete

Pr. 52 concludedMaterial costNumber of UnitsUnit CostTotal CostNovice10$36360Hiker2045900Expert20751,500Total material cost$ 2,760Conversion costs From Stitching50422,100 From Customizing10*36360 Total conversion costs$2,460Total$ 5,220Customizing Department:.* 50 units, 20% complete

Comments on 8-52The 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.