Question

Earth Company is a manufacturer of circuit boards. 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 Earth Company’s books are as follows: Units Costs Work in process, December 31 (50% complete as to labour and overhead) 250,000 $ 700,000 Finished goods, December 31 150,000 1,000,000 Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 70% of direct labour cost. There was no finished goods inventory at the beginning of the year. A review of Earth Company’s inventory and cost records has disclosed the following data, all of which are accurate: Costs Units Materials Labour Work in process, January 1 (80% complete as to labour and overhead) 100,000 $ 200,000 $ 315,000 Units started into production 900,000 Cost added during the year: Materials cost 1,300,000 Labour cost 1,985,000 Units completed during the year 750,000 The company uses the weighted average cost method. Required: 1. Determine the equivalent units and costs per equivalent unit for materials, labour, 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.