Final answer:
When the percentage completion for opening work in process inventory is understated in a weighted average process costing system, the cost of units completed and transferred out is underestimated because fewer costs are allocated to the completed goods.
Step-by-step explanation:
When using a weighted average process costing system, the percentage completion with respect to opening work in process impacts the allocation of costs between work in process and completed goods. If the percentage completion for opening work in process inventory is understated, it means that the inventory is deemed to be less complete than it actually is. Therefore, fewer costs will be assigned to completed goods as the goods were supposedly less finished at the beginning of the period.
Thus, cost of units completed and transferred out is underestimated because the system allocates less cost to these units, inaccurately reflecting their true cost. Subsequently, if not adjusted, this can lead to financial reporting and business decision-making based on flawed cost information. This error does not affect the total manufacturing cost directly but rather the allocation of these costs between the categories of inventory.