Question

Pacific Ink had beginning work-in-process inventory of $890,960 on October 1. Of this amount, $358,200 was the cost of direct materials and $532,760 was the cost of conversion.The 62,000 units in the beginning inventory were 25 percent complete with respect to both direct materials and conversion costs.

During October, 130,000 units were transferred out and 44,000 remained in ending inventory.The units in ending inventory were 75 percent complete with respect to direct materials and 35 percent complete with respect to conversion costs. Costs incurred during the period amounted to $3,304,000 for direct materials and $4,130,820 for conversion.

(1) Compute the equivalent units for the materials and conversion cost calculations.

(2) Compute the cost per equivalent unit for direct materials and for conversion costs using the FIFO method. (Round your answers to 2 decimal places.)

3. Compute the cost of goods transferred out and the cost of ending inventory using the FIFO method. (Round intermediate calculations to 2 decimal places.)

4. Is the ending inventory higher or lower under the weighted-average method compared to FIFO? Higher Lower

Answer 1

1) Equivalent unit Under FIFO :

Equivalent unit of material = (62000*75%+68000*100%+44000*75%) = 147500 Units

Equivalent unit of conversion = (62000*75%+68000*100%+44000*35%) = 129900 Units

2)  Compute the cost per equivalent unit for direct materials and for conversion costs using the FIFO method. (Round your answers to 2 decimal places.)

Direct material = 3304000/147500 = 22.40

Conversion = 4130820/129900 = 31.80

3) Cost of goods transferred out = (22.40+31.80*114500)+890960 = $7096860

Cost of ending inventory = (33000*22.40+15400*31.80) = $1228920

4) Cost of ending inventory under weighted average method would be higher compared to FIFO

So answer is Higher