You are employed by Spirit Company, a manufacturer of digital watches. The compa
ID: 2471377 • Letter: Y
Question
You are employed by Spirit Company, a manufacturer of digital watches. The company's chief financial officer is trying to verify the accuracy of the ending work-in-process and finished goods inventories prior to closing the books for the year. You have been asked to assist in this verification. The year-end balances shown on Spirit Company's books are as follows:
Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 60% of direct labour cost. There was no finished goods inventory at the beginning of the year. A review of Spirit Company's inventory and cost records has disclosed the following data, all of which are accurate:
The company uses the weighted-average cost method. Required:
Determine the equivalent units and costs per equivalent unit for materials, labour, and overhead for the year.
Determine the amount of cost that should be assigned to the ending work-in-process and finished goods inventories.
Prepare the necessary correcting journal entry to adjust the work-in-process and finished goods inventories to the correct balances as of December 31.
Determine the cost of goods sold for the year assuming there is no under- or over-applied overhead.
Explanation / Answer
Equivalent units
Material
Labor
Overheads
348,000
290,000
112,000
Cost per Equivalent unit
Material
labor
Over heads
Equivalent unit
348,000
290,000
112,000
Total Cost
Material
1,300,000
Labor
1,995,000
Overheads
1,197,000
Cost per unit
3.74
6.88
10.69
Equivalent units
Material
Labor
Overheads
348,000
290,000
112,000
Cost per Equivalent unit
Material
labor
Over heads
Equivalent unit
348,000
290,000
112,000
Total Cost
Material
1,300,000
Labor
1,995,000
Overheads
1,197,000
Cost per unit
3.74
6.88
10.69
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