Reference no: EM132730416
Question - You are engaged in the audit of the December 31, 2013, financial statements of Epworth Products Corporation. You are attempting to verify the costing of the work-in-process and finished goods ending inventories that were recorded on Epworth's books as follows:
Units Cost
WIP 300,000 $860,000
(50% complete as to labor and overhead)
Materials are added to production at the beginning of the manufacturing process, and overhead is applied to each product at the rate of 60 percent of direct labor costs. Epworth uses the FIFO costing method. A review of Epworth's 2013 inventory cost records disclosed the following information:
Units Materials Labor
WIP, Jan. 1, 2013 200,000 $200,000 $315,000 (80% complete as to labor and overhead)
Started 1,000,000
Completed 900,000
Current period costs $1,300,000 $1,991,375
Required - Prepare a production cost report to verify the inventory balances. What is the amount of potential understatement or overstatement of the ending work-in-process account?