Question

The Matsui Lubricants plant uses the FIFO method to account for its work-in-process inventories. The accounting records show the following information for a particular day.

Beginning WIP inventory
Direct materials	$	975
Conversion costs		542
Current period costs
Direct materials		23,520
Conversion costs		16,555

Quantity information is obtained from the manufacturing records and includes the following.

Beginning inventory	750	units	(60% complete as to materials, 56% complete as to conversion)
Current period units started	5,800	units
Ending inventory	2,000	units	(40% complete as to materials, 30% complete as to conversion)

Exercise 8-35 (Algo) Compute Costs per Equivalent Unit: FIFO Method (LO 8-5)

Required:

a. Compute the equivalent units for the materials and conversion cost calculations.

b. Compute the cost per equivalent unit for direct materials and for conversion costs using the FIFO method.

C. Compute the cost of goods transferred out and the ending inventory using the FIFO method.

Answer 1

Units transferred out = 750 + 5800 - 2000 = 4550 units
Units started and transferred = 4550 - 750 = 3800 units

a.
Equivalent units of Production = Beginning WIP (100% - completion) + Units started and transferred + Ending WIP x Completion
Materials = 750 x (100% - 60%) + 3800 + 2000 x 40% = 4900 units
Conversion = 750 x (100% - 56%) + 3800 + 2000 x 30% = 4730 units

b. Cost per equivalent unit = Cost added / Equivalent units
Material = $23520 / 4900 = $4.80 per unit
Conversion = $16555 / 4730 = $3.50 per unit

c.
Cost of units transferred out
Material = 4550 x $4.80 = $21840
Conversion = 4550 x $3.50 = $15925
Total = $37765

Ending inventory Cost
Material = 2000 x 40% x $4.80 = $3840
Conversion = 2000 x 30% x $3.50 = $2100
Total = $5940