The records of Fremont Corporation’s initial and unaudited accounts show the fol

Question

The records of Fremont Corporation’s initial and unaudited accounts show the following ending inventory balances, which must be adjusted to actual costs:

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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:

Required

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. Debit or credit Cost of Goods Sold for any difference.

If the adjustment in requirement (b) is not made, will the company’s income and inventories be overstated or understated?

Units Unaudited Costs Work-in-process inventory 120,000 $793,152 Finished goods inventory 20,000 337,560 FREMONT CORPORATION Production Cost Report Weighted Average Part a. PhysicalEquivalent units Flow ol production units: Units Materials Labor Overhead Beginning WIP inventory Units started this period Total units to be accounted for Units accounted for Units completed and transferred out From beginning inventory Started and completed currently Total transferred out Units in ending WIP inventory Total unts accounted for Costs: Costs to be accounted for Details Labor Total Costs Materials Overhead Costs in beginning WIP inventory Current period costs Total costs to be accounted for Costs per equivalent unit Labor Costs accounted for Costs assigned to units transferred out Labor Total costs of unts transferred out Costs assigned to ending WIP ry aa Labor Total endng WIP inventory Total costs accounted for Part b. Adjustment required: Work in Finished Per problem statement Correct Difference Prepare the journal entry below to adjust the accounts to the correct amounts Credit Work in Finished Goods Cost of Goods Sold Part c. Overstated ted income would have been Work in Process would have beern Finished Goods would have been

Explanation / Answer

Part a.

Part b. Adjustment required:

Part c.

FREMONT CORPORATION Production Cost Report - Weighted Average Flow of production units: Physical
Units Equivalent Units Materials Labor Overhead Units to be accounted for Beginning WIP inventory 80000 Units started this period 400000 Total units to be accounted for 480000 Units accounted for Units completed and transferred out From beginning inventory 80000 Started and completed currently 280000 Total transferred out 360000 360000 360000 360000 Units in ending WIP inventory 120000 120000 48000 48000 Total units accounted for 480000 480000 408000 408000 Details Costs: Total Costs Materials Labor Overhead Costs to be accounted for Costs in beginning WIP inventory 1222800 240000 546000 436800 Current period costs 5534400 1560000 2208000 1766400 Total costs to be accounted for $ 6757200 1800000 2754000 2203200 Costs per equivalent unit Materials 3.75 Labor 6.75 Overhead 5.4 Costs accounted for Costs assigned to units transferred out Materials 1350000 1350000 Labor 2430000 2430000 Overhead 1944000 1944000 Total costs of units transferred out 5724000 Costs assigned to ending WIP Materials 450000 450000 Labor 324000 324000 Overhead 259200 259200 Total ending WIP inventory 1033200 Total costs accounted for $ 6757200 1800000 2754000 2203200

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