What would happen to the equivalent units, production cost per unit and costs transferred out for a company using weighted-average if the degree of completion of the ending inventory were underestimated?
What will be an ideal response?
If the degree of completion of ending inventory were underestimated, the equivalent units would be understated. Since equivalent units are the denominator for the cost per unit, this would be overstated since the denominator is too small. Since the cost per unit is overstated, the costs transferred out would also be overstated.
Although it is not requested, the ending inventory cost would be understated due to the understatement of the equivalent units in ending inventory.
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