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Pacific Siding Incorporated produces synthetic wood siding used in the construction of residential and commercial buildings. Pacific Sidings fiscal year ends on March 31, and the weighted-average method is used for the companys process costing system.

Financial results for the first 11 months of the current fiscal year (through February 28) are well below the expectations of management, owners, and creditors. Halfway through the month of March, the chief executive officer (CEO) and the chief financial officer (CFO) ask the controller to estimate the production results for the month of March in the form of a production cost report (the company has only one production department). This report is shown as follows.

Data Entry Section
Unit Information		Percent Complete
	Units (board feet)	Direct Materials			Direct Labor			Overhead
Units in beginning WIP inventory (all completed this period)	430,000		n/a			n/a			n/a
Units started and completed during the period	230,000		100%			100%			100%
Units started and partially completed during the period	88,000		40			60			20
Cost Information		Direct materials			Direct labor			Overhead
Costs in beginning WIP inventory		$	94,000		$	108,000		$	168,000
Costs incurred during the period			73,000			93,000			153,000

PACIFIC SIDING INCORPORATED
Preliminary Production Cost Report
Month Ending March 31
Step 1: Summary of Physical Units and Equivalent Unit Calculations
Units to be accounted for:	Physical Units
Units in beginning WIP inventory		430,000
Units started during the period		318,000
Total units to be accounted for		748,000
				Equivalent Units
Units accounted for:		Physical Units		Direct Materials			Direct Labor			Overhead
Units completed and transferred out		660,000			660,000			660,000			660,000
Units in ending WIP inventory		88,000			35,200			52,800			17,600
Total units accounted for		748,000			695,200			712,800			677,600
Step 2: Summary of Costs to Be Accounted for
Costs to be accounted for:	Direct Materials			Direct Labor			Overhead			Total
Costs in beginning WIP inventory	$	94,000		$	108,000		$	168,000		$	370,000
Costs incurred during the period		73,000			93,000			153,000			319,000
Total costs to be accounted for	$	167,000		$	201,000		$	321,000		$	689,000
Step 3: Calculation of Cost per Equivalent Unit
	Direct Materials			Direct Labor			Overhead			Total
Total costs to be accounted for (a)	$	167,000		$	201,000		$	321,000
Total equivalent units accounted for (b)		695,200			712,800			677,600
Cost per equivalent unit (a) (b)	$	0.2402		$	0.2820		$	0.4737		$	0.9959
Step 4: Assign Costs to Units Transferred Out and Units in Ending WIP Inventory
	Direct Materials			Direct Labor			Overhead			Total
Costs assigned to units transferred out	$	158,544		$	186,111		$	312,662		$	657,317
Costs assigned to ending WIP inventory		8,456			14,889			8,338			31,683
Total costs accounted for										$	689,000

Armed with the preliminary production cost report for March, and knowing that the companys production is well below capacity, the CEO and CFO decide to produce as many units as possible for the last half of March, even though sales are not expected to increase any time soon. The production manager is told to push his employees to get as far as possible with production, thereby increasing the percentage of completion for ending WIP inventory. However, since the production process takes three weeks to complete, all of the units produced in the last half of March will be in WIP inventory at the end of March.

Required:

b. Using the following assumptions, prepare a revised estimate of production results in the form of a production cost report for the month of March. Assumptions based on the CEO and CFO request to boost production:

1. Units started and partially completed during the period will increase to 315,000 (from the initial estimate of 88,000). This is the projected ending WIP inventory at March 31.

2. Percentage of completion estimates for units in ending WIP inventory will increase to 80 percent for direct materials, 85 percent for direct labor, and 90 percent for overhead.

3. Costs incurred during the period will increase to $113,000 for direct materials, $120,000 for direct labor, and $168,000 for overhead (Note: most overhead costs are fixed).

4. All units completed and transferred out during March are sold by March 31.

c. Compare your new production cost report with the one prepared by the controller. How much do you expect profit to increase as a result of increasing production during the last half of March?

d. Is the request made by the CEO and CFO ethical?

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