Question

The following is a summary of the May 2016 operations of Reagan Company that makes and sells airplane models. Suppose that the company uses the FIFO method.

	Physical Units	Direct Materials	Conversion Costs
WIP, beginning inventory	28,000	$39,200	$30,800
Degree of completion for BI		100%	25%
Started in May	60,000
Completed and transferred out in May	66,000
WIP, ending inventory	22,000
Degree of completion for EI		100%	50%
Costs added in May		$90,000	$280,000

What is the cost of goods transferred out during May?

Group of answer choices

$293,000

$363,000

$447,000

$517,000

Answer 1

Answer: $363,000

Calculations:

i. Equivalent units:

		Direct materials		Conversion costs
WIP, beginning inventory	28,000	0%	0	75%	21,000
Started and completed [66,000-28,000]	38,000	100%	38,000	100%	38,000
WIP, Ending inventory	22,000	100%	22,000	50%	11,000
Equivalent units			60,000		70,000

ii.Cost per equivalent unit:

	Direct materials	Conversion costs	Total
Costs added during May	$90,000	$280,000	$370,000
Equivalent units	60,000	70,000
Cost per equivalent unit	$1.50	$4.00	$5.50

iii. Cost of units transferred out:

	Direct materials	Conversion costs	Total
WIP, Beginning	$39,200	$30,800
[21,000 x $4.00]		$84,000
Started and completed
[38,000 x $1.50]	$57,000
[38,000 x $4.00]		$152,000
Total	$96,200	$266,800	$363,000