Reference no: EM131724045

Problem -

You are a CPA auditing Ghost Company's financial statements. Your firm 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 company uses Process Costing (FIFO) to determine inventory costs.

The audited financial statements from the prior year show the following ending balances:

The year-end balances are shown as follows (the units have been verified through a year-end count, the $$ are from the UNaudited Trial Balance:

Manufacturing Overhead is applied at the rate of 60% of direct labor cost. A review of Ghost's inventory and cost records has disclosed the following data (all of this information has been verified through physical counts or through tracing information back to source documents):

Your supervisor thinks that someone made a posting error in the Trial Balance. All unit information is correct (including % of completion information). The beginning cost information and costs added during the year are correct. However, you are to review the ending balances in WIP and Finished Goods that are reflected in the Trial Balance.

Required (support your work - if I don't know where you got your number and it is incorrect, no partial points can be awarded). Clearly label your work showing answers and support for each Requirement (there are 6):

1. How much of beginning WIP is Manufacturing Overhead?
2. Determine the equivalent units and costs per equivalent unit for materials and conversion costs.
3. Assign costs to Ending WIP and Goods Transferred.
4. Prove that all manufacturing costs were accounted for.
5. Compute the ending balance in Finished Goods.
6. If one or both of the ending balances in WIP and Finished Goods are incorrect, prepare any necessary journal entry to bring the accounts to their correct balances (with any "plug" going to Cost of Goods Sold). If they are correct, write "N/A".