Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 12

By mistake, the production supervisor transposed the digits on the production report and reported a higher percentage of completion for each inventory component. Assume that there was no beginning inventory. What is the effect of this error on the following:

a.The computation of total equivalent units.

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b.The computation of costs per equivalent unit.

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c.Costs assigned to cost of goods transferred out for the period.

Step 1 of 3

All units cannot be wholly completed at the end of a specific period. Some units may be partially complete. Expenses (Material cost and conversion costs) might have been incurred on such units to the extent of their completion. Hence, in order to determine the actual production in a process, the concept of equivalent units is used. The partially completed units are multiplied with their percentage of completion and the resultant figure is considered as whole units produced. The completion rate of inventory is mistakenly stated higher.

a. Due to higher percentage of completion rate of inventory, the equivalent units will be higher and hence, the amount of total equivalent units will be higher.