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Techno Enterprises: Question about Equivalent Units

Techno Enterprises is a manufacturer of microchips (referred to as chips). Its production process is complex and involves more than 100 steps, starting with production of small, round silicon wafers and ending with chips being put into individual packages that protect them and provide connections to the products for which the chips are developed. The company uses a process costing system and has always made the simplifying assumption that wafers in production, but not yet finished, are 50 percent complete with respect to conversion costs.

In the current year, the company has struggled due to a decline in computer sales and reduced demand for chips. To boost profit, the company has decided to start a very large number of wafers into production in the last few days of the year. Due to the use of ceramic carriers and other high-performance features, the Techno Enterprises production process typically takes 30 days.

Why starting a large number of wafers into production will boost profit even though the chips that ultimately result from the wafers are ones that have not been sold or even completed? Is the company's approach to boosting profit ethical?

Solution Preview

Techno enterprises manufacture microchips and use the process costing system. The company values the work in progress as 50% complete (with respect to conversion costs) for the purpose of ascertaining the equivalent units and cost per unit is determined on the basis of ...

Solution Summary

This solution discusses the ethical implication of Techno's accounting decision in 190 words.

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