Chapter 3 Exercise E9: Assigning Costs: FIFO Costing Method
The Bakery produces cupcakes. It uses a process costing system. In March, its beginning inventory was 450 units, which were 100% complete for direct materials costs and 10% complete for conversion costs. The cost of beginning inventory was $655. Units started and completed during the month totaled 14,200. Ending inventory was 410 units, which were 100% complete for direct materials costs and 70% complete for conversion costs. Costs per equivalent unit for March were $1.40 for direct materials costs and $1.00 for conversion costs. Using the FIFO costing method, compute the cost of goods transferred to the Finished Goods Inventory account, the cost remaining in the Work in Process
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From the information in the process cost report, identify the amount that should be transferred out of the Work in Process Inventory account, and state were those dollars should be transferred. $116,196 should be transferred to Finished Goods Inventory.
3. Repeat requirements 1 and 2 for August.
Physical Units
Beginning Inventory
3050
Units started this period
32,800
Units to be accounted for
35,850
Beginning inventory
3,050
Units started and completed
29,200
Ending inventory
3,600
Units accounted for
35,850
Equivalent Units
Direct Material
Conversion Costs
-
0%
1220
40%
29200
100%
29,200
100%
3600
100%
1,800
50%
32,800
32,220
Current Costs
=
66,912
54774
Equivalent Units
=
32,800
32,220
Cost per equivalent unit
$3.74 =
$2.04 +
$1.70
Cost of goods manufactured and transferred out:
From beginning inventory
$9,455
Current costs to complete
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The computation of equivalent units under FIFO method differs from weighted average method in two ways. First the units transferred out figure are divided into two parts. One part consists of the units from beginning inventory that were completed and transferred out, and the other part consists of the units that were both started and completed during the current period. Second full consideration is given to the amount of work expended during the current period on units in the beginning work in process inventory as well as units the ending inventory. Thus, under the FIFO method, it is necessary to convert both beginning and ending inventories to an equivalent unit basis. For the beginning inventory, the equivalent units represent the work done to complete the units; for the ending inventory, the equivalent units represent the work done to bring the units to a stage of partial completion at the end of the period (the same as with the weighted average method). The formula for computing equivalent units of production is more complex under FIFO method than under weighted average