Terry’s Iced Tea hires us to help assign and report costs. The company has two departments: mixing and bottling. To aid our analysis, the following Tableau Dashboard is provided with information for the mixing department. The company uses the weighted average method.
1. Prepare a process cost summary for the mixing department
2. Management’s bonus is based on reporting low amounts of inventory. With this bonus system is management more likely to overestimate or underestimate completion percentages assigned to each component of ending inventory?
a) Underestimate
b) Overestimate
3. If an error is made and the percentage of completion for units in ending inventory is overstated, what effect does this have on current period financial statements?
a) Overstatement of cost of goods sold and an understatement of net income.
b) Understatement of cost of goods sold and an overstatement of net income.