You are employed by Spirit Company, a manufacturer of digital watches. 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 Spirit’s books are as follows:
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 (all prior year finished goods were sold). A review of Spirit’s inventory and cost records has disclosed the following data:
Units Materials Labor
WIP, January 1 (conversion 80% complete) 200,000 $200,000 $315,000
Units started into production 1,000,000
Costs added during the year:
Materials cost $1,300,000
Labor cost $1,995,000
Units completed during the year 900,000
The company uses the weighted average method.
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