DISCUSSION 2.

2
Exercise 3.1 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.
REQUIRED
Explain 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?

“The company has decided to start a very large number of wafers into production in the last few
days of the year”.
Techno Enterprises uses a method for process costing, as it is a broad output of the same object.
Many of the overheads associated with the manufacture of these wafers are considered a fixed
cost. The wafers in production are full 50 percent in comparison to the price of conversion. This,
in effect, would allow a sizable portion of fixed overhead output associated with the wafers to go
into process work. Profit will tend to be exceedingly high as a significant portion of fixed
overhead output that goes to work in operation would minimize both the cost of the chips
produced and the cost of the products sold.
Techno Enterprises’ choice in boosting its profits is both misleading and unethical. Similar to
last week’s discussion, anytime a company uses an approach to boost its profit unethically, it will
always affect its investors poorly. Since investors are using current earnings to measure stocks
and are also using this to forecast future performance, Techno Enterprises’ unethical approach
will ultimately jeopardize this. Techno Enterprises is completely wrong for utilizing this
manipulative tactic for inflating profits and company gain-which is both illegal and tremendously
unethical.