Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher

Exercise 28

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:

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:

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