Falcon Fabricating Company Uses a Process Costing System

question 85

Essay

Falcon Fabricating Company uses a process costing system. One of the employees is responsible for estimating the percentage completion; however, he has never had any formal training in making these estimates. He is wondering whether the accuracy of his estimates could be improved. A colleague in another department suggested that he consider using techniques such as timing one unit through each department and identifying points in the production process where units appear to be 25% complete, 50% complete, and so on.
a)Discuss why the percent completion is not generally known with absolute accuracy.
b)Comment on whether the suggested method is likely to provide an accurate estimate of work in process.
c)List one advantage of improving the accuracy of the estimate. What might be a disadvantage?

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