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2.3 – Discussion: Conversion Costs ◦By how much would the managers suggested manipulation lower the unit conversion costs?  To calculate the equivalent unit of production we take the number of units in the ending WIP multiply by the percentage complete.  If on October 1, WIP of 400 units at a conversion of 25% complete would give us 100 equivalent units.  If the controller manipulated the conversion to 60%, it would look like 240 equivalent units.  That is a large difference and would deliver unreliable information.  ◦What should the controller do?  In an effort to reduce conversion costs, manipulating the results will change the manufacturing constant status.  Remaining constant is not a bad thing.  With a predictable manufacturing schedule, other may schedule around the delays.  The controller should not change anything and only report the facts.    ◦Discuss this situation in terms of ethics and cite specific ethical standards for managerial accountants.  There is a central code of ethics for managerial accounting that is competence, confidentiality, integrity, and credibility.  They are expected to maintain an appropriate level of professional expertise.  Able to keep information confidential.  Mitigate actual conflicts of interest and refrain from engaging in prejudice conduct.   As well as, communicate information fairly and objectively to disclose information that may cause delays or deficiencies.


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