>> Managerial Accounting
Dengo Co. manufactures a single product in one department. Direct labor and overhead are added evenly throughout the process, while direct materials are added at the beginning of the process. The company uses the FIFO method of process costing. During October, the company completed and transferred 22,200 units to finished goods inventory. Of the units completed, 3,000 were from beginning inventory and the remaining 19,200 were started and completed during the month. Beginning goods in process were 100% complete with respect to direct materials and 40% complete with respect to direct labor and overhead. The company has 2,400 units (100% complete with respect to direct materials and 80% complete with respect to direct labor and overhead) in process at month end. Information on costs of beginning inventory and costs added during the month follows.
1. Prepare the company's process cost summary for October using the FIFO method.
2. Prepare the journal entry dated October 31 to transfer the cost of completed units to finished good inventory.
3. The company provides incentives to department managers by paying monthly bonuses based on their success in controlling costs per equivalent unit of production. Assume that the production department underestimates the percentage of completion for units in ending inventory with the result that its equivalent units of production for October are understated.
a) What impact does this error have on the October bonuses paid to the production managers?
b) What impact, if any, does this error have on November bonuses?