Question

In: Accounting

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

Problem 8-57 (Static) Prepare a Production Cost Report and Adjust Inventory Balances: Weighted-Average Method (LO 8-3, 4)

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


UnitsUnaudited Costs
Work-in-process inventory120,000$793,152
Finished goods inventory20,000
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.



Costs

UnitsDirect MaterialsDirect Labor
Beginning inventory (80% complete as to labor)80,000$240,000
$546,000
Units started400,000





Current costs

1,560,000

2,208,000
Units completed and transferred to finished goods inventory360,000






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.)

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.

c. Please interpret solution in 4-5 sentences

Solutions

Expert Solution

Answer-

A)

FREMONT CORPORATION
Production Cost Report—Weighted-Average
Physical Units Total Costs Materials Labor Overhead
Flow of Production Units
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 (360000-80000)= 280000
Total transferred out 360000 360000 360000 360000
Units in ending WIP inventory (480000-360000)= 120000 (120000*100%)= 120000 (120000*40%)= 48000 (120000*40%)= 48000
Total units accounted for 480000 480000 408000 408000
Costs to be accounted for:
Costs in beginning WIP inventory $1222800 $240000 $546000 (546000*80%)= $436800
Current period costs 5534400 1560000 2208000 (2208000*80%)= 1766400
Total costs to be accounted for $6757200 $1800000 $2754000 $2203200
Cost per equivalent unit:
Materials $3.75
Labor $6.75
Overhead $5.40
Costs accounted for:
Costs assigned to units transferred out:
Materials $1350000 (360000*$3.75)= 1350000
Labor 2430000 (360000*$6.75)= 2430000
Overhead 1944000 (360000*$5.40)= 1944000
Total costs of units transferred out $5724000 $1350000 $2430000 $1944000
Costs assigned to ending WIP inventory:
Materials $450000 (120000*$3.75)= 450000
Labor 324000 (48000*$6.75)= 324000
Overhead 259200 (48000*$5.40)= 259200
Total ending WIP inventory $1033200 $450000 $324000 $259200
Total costs accounted for $6757200 $1800000 $2754000 $2203200

Cost per equivalent unit:

Materials= $1800000/480000= $3.75

Labor= $2754000/408000= $6.75

Overhead= $2203200/408000= $5.40

B) Difference in Work in process= Unaudited accounts balance-Actual balances

Work in process= $793152-1033200= $-240048

Finished goods= $337560-($3.75+6.75+5.40)*20000= $19560

Event Account titles and explanation Debit Credit
1 Work in process $240048
Finished goods $19560
Cost of goods sold (240048-19560) $220488
(To record difference between the unaudited records and actual ending balances of Work-in-Process Inventory and Finished Goods Inventory)

C)

Income Understated
Work in process inventory Understated
Finished goods inventory Overstated

If the adjustment (B) is not made than it will also not effect the cost of goods sold by which the company's income will be understated.

As the unaudited ending work in process inventory is less than the actual ending work in process inventory and if the adjustment (B) is not made the company's work in process inventories must be understated.

As the unaudited ending finished goods inventory is greater than the actual ending finished goods inventory and if the adjustment (B) is not made the company's finished goods inventories must be overstated.

ekkarill92 answered 2 years ago
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