Question

Chapter 8, problem 50

Prepare a Production Cost Report and Adjust Inventory Balances: Weighted-Average Method The records of Fremont Corporation's initial and unaudited accounts show the following ending inventory balances, which must be adjusted to actual costs Work-in-process inventory ............ Finished goods inventory ............. Units 120,000 20,000 Unaudited Costs $793,152 337,560 As the auditor, you have learned the following information Ending work-in-process inventory is 40 percent complete with respect to conversion costs. Materials are added at the beginning of the manufacturing process, and overhead is applied at the rate of 80 percent of the direct labor costs. There was no finished goods inventory at the start of the period. The following additional information is also available Units Cost Direct Materials 80,000 400,000 $ 240,000 Beginning inventory (80% complete as to labor) ......... Units started Current costs ..... Units completed and transferred to finished goods inventory .......... 1,560,000 360,000 Required a Prepare a production cost report for Fremont using the weighted average method. (Hint You will need to calculate equivalent units for three categories, materials, labor and overhead.) Show the journal entry required to correct the difference between the unaudited records and actual ending balances of Work in Process Inventory and Finished Goods inventory Debitor credit Cost of Goods Sold for any difference If the adjustment in requirement is not made will the company income and inventories be overstated or understated?

Answer 1

1)

PRODUCTION COST REPORT
Flow of production units	Physical units	Materials Equiv units	Labor Equiv units	OH Equiv units
Units to be accounted for
Beginning WIP	80,000
Units started this period	400,000
Total units to be accounted for	480,000
Units accounted for
Units completed and transferred out
From beginning inventory	80,000
Started and completed currently	280,000
Total tfd out	360,000	360,000	360,000	360,000
Units in ending WIP inventory	120,000	120,000	48,000	48,000
Total units accounted for	480,000	480,000	408,000	408,000
Flow of costs	Total costs	Materails	Labor	Overhead
Costs to be accounted for
Cost in beginning WIP	1,222,800	240,000	546,000	436,800
Current period costs	5,534,400	156,000	2,208,000	1,766,400
Total costs to be accounted for	6,757,200	1,800,000	2,754,000	2,203,200
Costs per equivalent unit
Costs accounted for
Assigned to units tfd out	5,724,000
Costs assigned to ending WIP	1,033,200
Total costs accounted for	6,757,200	1,800,000	2,754,000	2,203,200

　

2)

Particulars	Debit	Credit
Work in process	240,048
Finished goods		19,560
Cost of goods sold		220,488

　

3)

Income would have been	Understated
Work in Process would have been	Understated
Finished Goods would have been	Overstated