Week 3: Percentage of Completion

Part 1: The equivalent cost per unit assuming the ending inventory is 40% complete.

We must first determine the comparable units of production in order to compute the equivalent

cost per unit while assuming the ending inventory is 40% complete:

Equivalent units of production = Units completed and transferred out + (Ending inventory ×

Percentage of completion)

Units completed and transferred out = 90,000 units

Ending inventory = 9,000 units (94,500 units started - 90,000 units transferred out)

Percentage of completion = 40%

Equivalent units of production = 90,000 + (9,000 × 0.4) = 93,600 units

Equivalent cost per unit = Total transferred-in and production cost ÷ Equivalent units of

production

Equivalent cost per unit = $902,400 ÷ 93,600 units = $9.65 per unit

Part 2: The equivalent cost per unit assuming the ending inventory is 60 percent complete.

We must first determine the comparable units of production in order to compute the equivalent

cost per unit while assuming the ending inventory is 60% complete:

Units completed and transferred out = 90,000 units

Ending inventory = 9,000 units (94,500 units started - 90,000 units transferred out)

Percentage of completion = 60%

Equivalent units of production = 90,000 + (9,000 ×0.6) = 94,200 units

Equivalent cost per unit = Total transferred-in and production cost ÷ Equivalent units of

production

Equivalent cost per unit = $902,400 ÷ 94,200 units = $9.57 per unit
Part 3: Comment on Mr. Sawyer’s motives for establishing the percentage of completion at

60 percent rather than 40 percent.

Sawyer's motivation for setting the completion rate at 60% rather than 40% may have been to

improve the efficiency and cost-control credentials of his department. A larger percentage of

completion would indicate that the department has advanced more in its manufacturing process,

which would result in a cheaper cost per unit. This may enhance Mr. Sawyer's performance and

raise the possibility of a promotion to plant manager. It is also important to note that, provided

the information is conveyed in a formal and proper manner, telling the chief accountant about her

disagreement with Mr. Sawyer would not contravene the confidentiality requirements of ethical

professional conduct. Ms. Alvarez has an obligation to uphold ethical standards as a qualified

management accountant.