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Pacific Ink had beginning work-in-process inventory of $1,005,960 on October 1. Of this amount, $423,500 was the cost of direct materials and $582,460 was the cost of conversion. The 61,000 units in the beginning inventory were 30 percent complete with respect to both direct materials and conversion costs.

During October, 128,000 units were transferred out and 43,000 remained in ending inventory. The units in ending inventory were 80 percent complete with respect to direct materials and 40 percent complete with respect to conversion costs. Costs incurred during the period amounted to $3,314,300 for direct materials and $4,022,730 for conversion.

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 cost of ending inventory using the FIFO method.

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

Answer 1

a) Equivalent unit

	Whole Unit	% material	EUP-material	% conversion	EUP-conversion
Beginning WIP	61000	70%	42700	70%	42700
Unit started and completed	67000	100%	67000	100%	67000
Ending WIP	43000	80%	34400	40%	17200
Equivalent unit	171000		144100		126900

b) Cost per equivalent unit

	Material	Conversion
Cost added	3314300	4022730
Equivalent unit	144100	126900
Cost per equivalent unit	23	31.70

c) Cost of goods transferred out and ending inventory

	Direct material	Conversion	Total
Cost of unit transferred out	(109700*23+423500) = 2946600	(109700*31.70+582460) = 4059950	7006550
Ending work in process	34400*23 = 791200	17200*31.70 = 545240	1336440

d) Ending inventory would be higher weighted average method