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    Explaining Production Costs Using Equivalent Units in Ending Inventory

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    Scenario: Mary Mahr (Larry Lair) has recently been promoted to production manager, and so she has just started to receive various managerial reports. One of the reports she has received is the production cost report that you prepared. It showed that her department had 1,000 equivalent units in ending inventory. Her department has had a history of not keeping enough inventory on hand to meet demand. She has come to you, very angry, and wants to know why you credited her with only 1,000 units when she knows she had at least twice that many on hand.

    Instructions: Explain to her why her production cost report showed only 1,000 equivalent units in ending inventory. Write an informal memo. Be kind and explain very clearly why she is mistaken.

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    Solution Preview

    Interoffice Memo

    Mary Mahr
    Production Manager


    I have thought about your concerns over the number of equivalent units credited to your department, and I believe I understand the problem. I realize that you have only started receiving the production cost reports and they do not include an explanation of how they are prepared. ...