Question

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	190,000	$	812,122
Finished goods inventory	21,000		358,700

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)	88,000	$	686,400		$	848,000
Units started	540,000
Current costs			1,700,000			2,236,000
Units completed and transferred to finished goods inventory	438,000

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.)

   FREMONT CORPORATION
​    Production Cost Report- Weighted- Average

Flow of Production Units	Physical Units
Units to be accounted for
Beginning WIP inventory	??
Units started this period	??
Total units to be accounted for	??

   Compute Equivalent Units

		Materials	Labor	Overhead
Units accounted for:
Units completed and transferred out
From beginning inventory	??
Started and completed currently	??
Transferred Out	??	??	??	??
Units in ending WIP inventory	??	??	??	??
Total Units accounted for

   DETAILS

	Total Costs	Materials	Labor	Overhead
Costs to be accounted for:
Costs in beginning WIP inventory	??	??	??	??
Current Period costs	??	??	??	??
Total costs to be accounted for	$	$	$	$
Cost per equivalent unit:
Materials		??
Labor			??
Overhead				??
Costs accounted for:
Costs assigned to units transferred out:
Materials	??	??
Labor	??		??
Overhead	??			??
Total costs of units transferred out:	$$
Costs assigned to ending WIP inventory:
Materials	??	??
Labor	??		??
Overhead	??			??
Total ending WIP inventory	$$
Total Costs accounted for	$$	$$	$$	$$

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

Event	General Journal	Debit	Credit
1

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
Working in process would have been
Finished goods would have been

Answer 1

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