the internal audit staff of colossal furniture recommends to senior management that 635721

The internal audit staff of Colossal Furniture recommends to senior management that the percentage of completion used in its process costing calculation be fixed at 50%, thereby eliminating the type of manipulation described in the preceding example.

In December, the production manager (still Mr. Mammoth, despite his earlier manipulations) can earn yet another bonus if the company records a profit of $20,000. Near the end of the month, it appears that the company will be $5,000 short of its profit goal. To meet his target, Mr. Mammoth releases a large amount of work into the production area on December 31. No work is actually performed on any of these new projects, but because they are now categorized as work in process, the cost accountant must apply the standard percentage of completion to them.

The cost accountant allocates $5,000 of conversion costs to the new work in process items, which shifts these costs into the balance sheet as assets, thereby reducing the cost of goods sold by $5,000. Mr. Mammoth again earns his bonus.