Refer To The Scenario Located In The Analyze Think

Refer To The Scenario Located In Theanalyze Think

Refer to the scenario located in the “Analyze, Think, Communicate” section 12-5 of Chapter 12, “Job-Order, Process, and Hybrid Costing Systems” of Fundamental Managerial Accounting Concepts. This scenario involves an altercation between Rene Alverez and Bill Sawyer and requires you to weigh in with calculations and comments on the matter. Read the scenario in the textbook and complete the activity below. Compute the equivalent cost per unit, assuming the ending inventory is considered to be 40 percent complete. Compute the equivalent cost per unit, assuming the ending inventory is considered to be 60 percent complete. Write a 350-word summary of your calculations and findings. Comment on Mr. Sawyer’s motives for establishing the percentage of completion at 60 percent rather than 40 percent. Submit calculations and summary.

René Alverez knew she was in over her head soon after she took the job. Even so, the opportunity for promotion comes along rarely and she believed that she would grow into it. Ms. Alverez is the cost accounting specialist assigned to the finishing department of Standard Tool Company. Bill Sawyer, the manager of the finishing department, knows exactly what he is doing.

In each of the three years he has managed the department, the cost per unit of product transferred out of his Work in Process Inventory account has declined. His ability to control cost is highly valued, and it is widely believed that he will be the successor to the plant manager, who is being promoted to manufacturing vice president. One more good year would surely seal the deal for Mr. Sawyer.

It was little wonder that Ms. Alverez was uncomfortable in challenging Mr. Sawyer’s estimate of the percentage of completion of the department’s ending inventory. He contended that the inventory was 60 percent complete, but she believed that it was only about 40 percent complete. After a brief altercation, Ms. Alverez agreed to sign off on Mr. Sawyer’s estimate. The truth was that although she believed she was right, she did not know how to support her position. Besides, Mr. Sawyer was about to be named plant manager, and she felt it unwise to challenge such an important person.

The department had beginning inventory of 5,500 units of product and it started 94,500 units during the period. It transferred out 90,000 units during the period. Total transferred-in and production cost for the period was $902,400. This amount included the cost in beginning inventory plus additional costs incurred during the period. The target (standard) cost per unit is $9.45.

Determine the equivalent cost per unit, assuming that the ending inventory is considered to be 40 percent complete. Determine the equivalent cost per unit, assuming that the ending inventory is considered to be 60 percent complete. Comment on Mr. Sawyer’s motives for establishing the percentage of completion at 60 percent rather than 40 percent. Assuming that Ms. Alverez is a certified management accountant, would informing the chief accountant of her dispute with Mr. Sawyer violate the confidentiality standards of ethical professional practice in Exhibit 1.17 of Chapter 1 ? Did Ms. Alverez violate any of the standards of ethical professional practice in Exhibit 1.17 of Chapter 1 ? If so, which ones? Discuss the components of the fraud triangle that affected Ms. Alverez’s behavior.

Paper For Above instruction

The scenario presents a complex situation involving cost accounting estimates within a manufacturing environment, highlighting ethical considerations and managerial decisions. To accurately determine the equivalent cost per unit under differing completion assumptions, it is essential to understand the underlying costing principles and how percentage of completion impacts inventory valuation and cost per unit calculations.

Initially, the total costs accumulated for the period amount to $902,400, which includes beginning inventory costs and additional costs incurred during the period. The units transferred out and inventory levels are key to allocating these costs. The beginning inventory was 5,500 units, and during the period, production added 94,500 units, totaling 100,000 units, from which 90,000 units were transferred out. The ending inventory thus stands at 10,000 units.

Calculating the equivalent units involves multiplying the ending inventory units by their percentage of completion. For 40% complete inventory, the equivalent units are 10,000 x 0.40 = 4,000 units. For 60% complete inventory, it is 10,000 x 0.60 = 6,000 units. Adding these to the units transferred out gives the total equivalent units for cost allocation:

• At 40% completion: 90,000 + 4,000 = 94,000 units
• At 60% completion: 90,000 + 6,000 = 96,000 units

Next, the total costs are divided by these equivalent units to find the cost per unit:

- At 40% complete: $902,400 / 94,000 = approximately $9.59 per unit

- At 60% complete: $902,400 / 96,000 = approximately $9.39 per unit

The lower cost per unit at 60% completion indicates that recognizing a higher percentage of completion for inventory reduces the cost assigned per unit, reflecting a higher valuation of the ending inventory.

Bill Sawyer’s motive for selecting a 60% percentage over 40% likely stems from a desire to report lower costs and higher inventory valuation, which can positively influence financial statements and perceptions of efficiency. Such an estimate may be biased to enhance managerial performance or meet financial targets, raising ethical concerns about transparency and accuracy.

Regarding Ms. Alverez’s ethical considerations, as a certified management accountant (CMA), she is bound by strict confidentiality standards. Reporting her disagreement directly to the chief accountant could potentially violate confidentiality unless it pertains to ethical issues or violations of accounting standards. If her concern about the accuracy of the inventory percentage involves ethical issues or misstatements, she has a duty to report it through appropriate channels, such as an internal ethics committee or compliance office.

However, if her dispute was solely about judgment or estimation, and no ethical violation or misstatement was present, then reporting it might breach confidentiality. Ms. Alverez did not violate standards unless her disclosure involved information protected by confidentiality or a breach of trust. The components of the fraud triangle—pressure, opportunity, and rationalization—are evident here. Sawyer’s career aspirations and potential benefits create pressure; the opportunity arises from managerial control over estimates; and rationalization may involve justifying biased estimates to demonstrate controllership and control costs, possibly to secure career advancement.

In conclusion, the scenario exemplifies the importance of ethical conduct and accurate accounting practice. Ensuring objectivity and integrity in estimates like percentage of completion is crucial for truthful financial reporting, and understanding the ethical implications is vital for professional accountants.

References

• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2021). Managerial Accounting (16th ed.). McGraw-Hill Education.
• Hilton, R. W., & Platt, D. (2019). Managerial Accounting: Creating Value in a Dynamic Business Environment. McGraw-Hill Education.
• Cosserat, R. (2018). Ethical Decision-Making in Management Accounting. Journal of Business Ethics, 150(2), 359–372.
• American Institute of Certified Public Accountants. (2020). Code of Professional Conduct.
• Institute of Management Accountants. (2022). Statement of Ethical Professional Practice.
• Anthony, R. N., & Govindarajan, V. (2019). Management Control Systems (13th ed.). McGraw-Hill Education.
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