Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 41

Prepare a Production Cost Report and Adjust Inventory Balances: Weighted-Average Method

Elmhurst Parts’s initial and unaudited records show the following ending inventory balances, which must be adjusted to actual costs:

	Units	Unaudited Costs
Work-in-process inventory	120,000	$793,152
Finished goods inventory	20,000	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:

		Cost
	Units	Direct Materials	Direct Labor
Beginning inventory
(80% complete as to labor)	80,000	$ 240,000	$ 546,000
Units started	400,000
Current costs		1,560,000	2,208,000
Units completed and transferred to finished goods inventory	360,000

Required

a.Prepare a production cost report for Elmhurst using the weighted-average method. (Hint: You will need to calculate equivalent units for three categories: materials, labor, and overhead.)

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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.

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

Step 1 of 3

a.?

Elmhurst PartsProduction Cost Report—Weighted Average

Flow Of Production Units

	(Section 1)Physical units
Units to be accounted for:
?Beginning WIP inventory?	80,000
?Units started this period?	400,000
Total units to be accounted for?	480,000
		(Section 2)COMPUTE EQUIVALENT UNITS
		Materials	Labor		Overhead
Units accounted for:
?Units completed and transferred out:
??From beginning inventory?	80,000
??Started and completed currently?	280,000
??Total transferred out?	360,000	360,000	360,000		360,000
?Units in ending WIP inventory?	120,000	120,000	48,000	(40%)	48,000	(40%)
Total units accounted for?	480,000	480,000	408,000		408,000

Costs		Details
	Total costs	Materials		Labor						Overhead
Costs to be accounted for: (Section 3)
?Costs in beginning WIP inventory?	$? 1,222,800	$? 240,000		$?  546,000								$?  436,800
?Current period costs?	5,534,400	1,560,000		2,208,000								1,766,400
Total costs to be accounted for?	$6,757,200	$1,800,000		$2,754,000								$2,203,200
Cost per equivalent unit: (Section 4)
?Materials ($1,800,000  ¸  480,000)?			$3.75
?Labor ($2,754,000  ¸  408,000)?							$6.75
?Overhead ($2,203,200  ¸  408,000)?													$5.40
Costs accounted for: (Section 5)
?Costs assigned to units transferred out:
??Materials ($3.75 x 360,000)?	$1,350,000	$1,350,000
??Labor ($6.75 x 360,000)?	2,430,000			$2,430,000
??Overhead ($5.40 x 360,000)?	1,944,000											$1,944,000
?Total costs of units transferred out?	5,724,000
Costs assigned to ending WIP inventory:
??Materials ($3.75 x 120,000)?	450,000	450,000
??Labor ($6.75 x 48,000)?	324,000			324,000
??Overhead ($5.40 x 48,000)?	259,200											259,200
?Total ending WIP inventory?	1,033,200
Total costs accounted for?	$6,757,200	$1,800,000		$2,754,000								$2,203,200