The records of Fremont Corporation’s initial and unaudited accounts show the fol
ID: 2542412 • Letter: T
Question
The records of Fremont Corporation’s initial and unaudited accounts show the following ending inventory balances, which must be adjusted to actual costs.
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:
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.) (Round "Cost per equivalent unit" to 2 decimal places.)
FREMONT CORPORATION
Production Cost Report- Weighted- Average
Compute Equivalent Units
DETAILS
b. 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 no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
** Record the difference between the unaudited and actual ending balances of Work-In-Process Inventory and Finished Goods Inventory
c. 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 190,000 $ 812,122 Finished goods inventory 21,000 358,700Explanation / Answer
Solution:
Part a – Production Cost Report
Production Cost Report- Weighted- Average
Flow of Production Units
Physical Units
Units to be accounted for
Beginning WIP inventory
88000
Units started this period
540000
Total units to be accounted for
628000
Compute Equivalent Units
Materials
Labor
Overhead
Units accounted for:
Units completed and transferred out
From beginning inventory
88000
Started and completed currently (438,000 - 880000
350000
Transferred Out (100% completed for material' labor and overhead since in weighted average method beginning inventory is treated as fresh started units)
438000
438000
438000
438000
Units in ending WIP inventory (100% complete for Material and 40% for Conversion)
190000
190000
76000
76000
Total Units accounted for (A)
628000
628000
514000
514000
DETAILS
Total Costs
Materials
Labor
Overhead
Costs to be accounted for:
Costs in beginning WIP inventory
$2,212,800
$686,400
$848,000
$678,400
Current Period costs
$5,724,800
$1,700,000
$2,236,000
$1,788,800
Total costs to be accounted for (B)
$7,937,600
$2,386,400
$3,084,000
$2,467,200
Cost per equivalent unit: (B/A)
Materials
$3.80
Labor
$6.00
Overhead
$4.80
Costs accounted for:
Costs assigned to units transferred out:
Materials (438,000*$3.8)
$1,664,400
$1,664,400
Labor (438,000*$6)
$2,628,000
$2,628,000
Overhead (438,000*4.80)
$2,102,400
$2,102,400
Total costs of units transferred out:
$6,394,800
Costs assigned to ending WIP inventory:
Materials (190,000*$3.80)
$722,000
$722,000
Labor (76,000*$6)
$456,000
$456,000
Overhead (76,000*4.8)
$364,800
$364,800
Total ending WIP inventory
$1,542,800
Total Costs accounted for
$7,937,600
$2,386,400
$3,084,000
$2,467,200
Part b --- Journal Entry
Ending Work In Process Inventory (unaudited) = 190,000 Units = Unaudited Cost $812,122
Actual Cost for Ending Work In Process Inventory = $1,542,800
Difference = $1,542,800 - $812,122 = $730,678
Unaudited Ending Finished Goods Inventory = 21,000 Units = $358,700
Actual Cost for Completed Units = $6,394,800 for 438,000 Units
Actual Cost for 21,000 Units Completed = $6,394,800 / 438,000 x 21,000 = $306,600
Difference = 358,700 – 306,600 = $52,100
Event
General Journal
Debit
Credit
1
Cost of Goods Sold
730,678
Work In Process Inventory
730,678
2
Finished Goods Inventory
52,100
Cost of Goods Sold
52,100
Part c -- c. If the adjustment in requirement (b) is not made, will the company’s income and inventories be overstated or understated?
Income would have been
OVERSTATED
Working in process would have been
UNDERSTATED
Finished goods would have been
OVERSTATED
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Production Cost Report- Weighted- Average
Flow of Production Units
Physical Units
Units to be accounted for
Beginning WIP inventory
88000
Units started this period
540000
Total units to be accounted for
628000
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