True Religion Brand Jeans (TR) was established in 2002 to "take denim in a refreshing new direction." TR produces regular jeans and distressed (or broken in) jeans, in a variety of styles and sizes. TR has two departments (the sewing department and the ageing department). Plant overhead is allocated to the two departments, using normal costing based on machine hours. One hour of machine time in the sewing department and one hour in the ageing department are considered equivalent. TR uses a weighted average cost flow assumption for work-in-process. All over/under applied overhead is closed to cost of goods sold at the end of each month.

TR organizes its production into batches of identical pairs of jeans, each of which starts in the sewing department. Batches of distressed jeans also pass through the ageing department.

Sewing Department: All batches begin in the sewing department, where raw materials, added at the start of the process, are converted into pairs of jeans. Overhead is added evenly during the process. Raw materials costs vary from batch to batch. Each pair of jeans, regardless of which batch it comes from, requires one hour of machine time in the sewing department. Within the sewing department, overhead is allocated based on the actual number of pairs of jeans.

Ageing Department: Only batches which are to be distressed pass through the ageing department. Overhead is added evenly during the process. Each pair of jeans passing through the ageing process requires thirty minutes(i.e., half an hour) of machine time. Within the ageing department, overhead is allocated based on the actual number of pairs of jeans. The ageing department has no direct costs.

TR's annual budget calls for total plant overhead of $1,872,000. TR expects annual output of 48,000 pairs of regular jeans and 72,000 pairs of distressed jeans (a total of 120,000 pairs).

TR has no work-in-process at the start of August, and no finished goods inventory at either the beginning or ending of the month (all jeans completed are immediately sold). Actual costs incurred during the month of August are $150,000 raw materials and $176,875 overhead.

During August, TR produced and sold 126 different batches (numbered 1 through 126), with a total of 3,000 regular pairs and 7,000 distressed pairs of jeans. There was no work-in-process in the sewing department at the end of the month, but batch 127 (details below) remained in process (20% complete) in the ageing department at the end of the month. Batch 127 is NOT included in the 126 batches mentioned above. Consider the following two batches:

Batch 74 (one of the 126 batches produced and sold during the month): 100 pairs of regular jeans, with a total direct material cost of $2,000.

Batch 127 (20% complete in the ageing department): 500 pairs of distressed jeans, with a total direct material cost of $5,000.

3. What value will appear on TR's August 31 balance sheet, under Work-In-Process Inventory? (15 points)  

Answer rating: 100% (QA)

To determine the value that will appear on TRs August 31 balance sheet under WorkInProcess WIP Inventory we need to calculate the cost of the WIP inve... View the full answer