Reference no: EM13114454

You are employed by Freedom Company, a manufacturer of digital clocks. The company’s CFO is trying to verify the accuracy of the ending WIP 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 Freedom’s books are as follows:

Units Costs

                                                                          Units                                    Costs

WIP, 12/31 (conversion 50% complete)                 300,000                             $660,960

Finished Goods, 12/31                                        200,000                             $1,009,800

Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 60% of direct labor cost. There was no Finished Goods inventory at the beginning of the year. A review of Freedom’s inventory and cost records has disclosed the following data:

 

                                                Costs                                   

                                                                                                                                                                                                                             Units                      Materials                           Labor

WIP, January 1 (conversion 80% complete)   200,000                    $200,000                          $315,000

Units started into production                        1,000,000

         Materials cost                                                              $1,300,000

        Labor Cost                                                                                                               $1,995,000

Units completed during the year                    900,000           

 

The company uses the weighted average method.

Required (support your work):

a) Determine the equivalent units and costs per equivalent unit for materials and conversion costs.

b) Are the ending balances in the WIP and Finished Goods inventory as shown correct? If they are not correct, what should the ending balances be?

c) Determine the cost of goods sold for the year assuming that Freedom (there is no over or under-applied overhead).