$7).$ Case $6-21$ Inventory Valuation under Process Costing$-$Weighted$-$Average Method $[$LO$2,$ LO$3,$ LO$4,$ LO$5]25$ marks

Using an old family recipe, Rachel Archer started a company that produces root beer. Archer opened the doors of Rachel$$s Real Root Beer on January $1.$ The company struggled for the first few months, but by the end of September, the customer list was expanding rapidly. Archer realized that bottling by hand was becoming more and more difficult as the orders continued to come in$.$ To purchase the automated equipment needed to expand further, Archer realized it would be necessary to borrow money.

Archer was disappointed to find that few banks were willing to make a loan to such a small company, but she finally found a bank that would consider her loan application. However, Archer was informed that she would have to supply up$-$to$-$date financial statements with her loan application.

Archer had not bothered with formal financial statements so far$$she felt that as long as the balance in the company$$s chequing account kept increasing, the company was doing fine. She wondered how she was going to determine the value of the root beer in the work in process and finished goods inventories to put on her company$$s balance sheet.

Archer approached Ed Switzer, an old friend currently working for a local accounting firm. After talking with Archer and touring her production facility, Switzer suggested a process costing system $($using the weighted$-$average method$)$ since Archer$$s company produces only one standard product in a continuous production process. During the plant tour, Switzer noted that Archer ran the operation as one department. At the beginning of the process, the various ingredients were checked for quality and then mixed and injected with carbon dioxide to create bulk root beer. Then bottles were checked for defects, filled with root beer, capped, visually inspected again for defects, and then packed into cases $(12$ bottles per case$)$ for shipping. At this point, completed cases were transferred to finished goods.

Archer asked Switzer to help her calculate the work in process and finished goods inventory cost to put on the company balance sheet at the end of August. To get started, Switzer asked Archer to collect several pieces of information. Details collected by Archer are listed below:

Approximately $75\%$ of raw materials cost is added at the beginning of the process, and $25\%$ is added when the product is $85\%$ complete. Conversion costs are added evenly throughout the process.

Archer estimated there were $550$ units of product that were $75\%$ complete for raw materials and $60\%$ complete for conversion on August $1.$ From her bank records, she calculated that the raw materials cost included in the opening inventory was about $$650$ and conversion cost was about $$430.$

During August, $3,000$ units of product were started into production, and $2,400$ were completed and transferred to finished goods. Costs added to production during August were $$3,840$ for materials and $$3,480$ for conversion.

At the end of August, the work in process inventory was made up of $1,150$ units that were $75\%$ complete for materials and $50\%$ complete for conversion costs.

Using this information, Switzer agreed to prepare a report indicating the cost of both work in process and finished goods inventory that Archer would need to report on her balance sheet as at August $30.$

Required:

Take on the role of Switzer and prepare the report for Archer. Be sure to provide all details, including a full production report, to help Archer understand how costs were calculated.

Calculate the cost of the goods completed and transferred out to finished goods and the value of ending work in process. $25$ marks