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The records of Fremont Corporation’s initial and unaudited accounts show the following ending inventory balances, which...

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

Units Unaudited Costs
Work-in-process inventory 160,000 $ 803,992
Finished goods inventory 19,000 349,640

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
Units Direct Materials Direct Labor
Beginning inventory (80% complete as to labor) 82,000 $ 327,000 $ 805,000
Units started 480,000
Current costs 1,640,000 2,224,000
Units completed and transferred to finished goods inventory 402,000

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.) (Round "Cost per equivalent unit" to 2 decimal places.)

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.)

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

Solutions

Expert Solution

a.

Physcial units Materials Conversion
Work in Process Beginning 82000
Started during the period 480000
To account for 562000
Units transferred to finished goods 402000 402000 402000
Conversion 160000 160000 64000
Accounted for 562000
Equivalent units 562000 466000
Materials Conversion Total
Cost of Beginning Work in Process $      3,27,000 $ 14,49,000 $ 17,76,000
Cost added during the period $    16,40,000 $ 40,03,200 $ 56,43,200
Total Cost $    19,67,000 $ 54,52,200 $ 74,19,200
Equivalent units of Production 562000 466000
Cost per equivalent unit $              3.50 $        11.70 $          15.20
Materials Conversion Total
Ending work in Process Inventory
Equivalent units of Production 160000 64000
Cost per equivalent unit $              3.50 $        11.70
Cost of Ending work in Process Inventory $      5,60,000 $   7,48,800 $ 13,08,800
Units Completed and transferred out
Units transferred to next department 402000 402000
Cost per equivalent unit $              3.50 $        11.70
Cost of units transferred out $    14,07,000 $ 47,03,400 $ 61,10,400
Reconciliation
Costs to be accounted for :
   Cost of beginning work in process inventory $    17,76,000
Costs added to the production during the year $    56,43,200
   Total Costs to be accounted for $   74,19,200
Cost of Ending work in Process Inventory $    13,08,800
Cost of units transferred out $    61,10,400
   Total Costs accounted for $   74,19,200

b.
Ending Finished Goods Inventory = 19000 x $15.20 = $288800

Account Titles Debit Credit
Work in process Inventory $      5,04,808 =1308800-803992
        Finished Goods Inventory $      60,840 =349640-288800
        Cost of Goods Sold $   4,43,968 =504808-60840

c.
If adjustment is not made
Inventory will be understated, and income will also be understated

ekkarill92 answered 1 year ago
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