[zoyabaig]

You are employed by Spirit Company, a manufacturer of digital watches. The company’s chief financial officer is trying to verify the accuracy of the ending work in process and finished goods inventories prior to closing the books for the year. You have been asked to assist in this verification. The year-end balances shown on Spirit Company’s books are as follows:

Units Costs
Work in process, December 31 (labor and overhead 30% complete) 40,000 $82,500
Finished goods, December 31 55,000 $186,000

Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 50% of direct labor cost. There was no finished goods inventory at the beginning of the year. A review of Spirit Company’s inventory and cost records has disclosed the following data, all of which are accurate:

Costs
Units Materials Labor
Work in process, January 1 (labor and overhead 90% complete) 35,000 $53,900 $29,610
Units started into production 119,000
Cost added during the year:
Materials cost $229,460
Labor cost $93,870
Units completed during the year 114,000

The company uses the weighted-average method.

Required:

1. Determine the equivalent units and costs per equivalent unit for materials, labor, and overhead for the year.
2. Determine the amount of cost that should be assigned to the ending Work in Process and Finished Goods inventories.
3. Prepare the necessary correcting journal entry to adjust the Work in Process and Finished Goods inventories to the correct balances as of December 31.
4. Determine the Cost of Goods Sold for the year assuming there is no under- or overapplied overhead.

(CPA, adapted

[Curlyben]

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