Home Depot’s Newest Manager
Refer to the scenario located in the “Analyze, Think, Communicate” section 12-5 of Ch. 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 highlighted below and complete the activity below.
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. Sawver’s estimate. The truth was that although she believed she was right, she did not Know how to support her position. Besides. Mr. Sawver 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 Deriod. 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
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.