Question

Problem 6-44 FIFO Method [LO 6-2, 6-3, 6-5) Alvis Construction Supply Company has a department that manufactures wood trusses (wood frames used in the construction industry). The following information is for the production of these trusses for the month of February oints Print 4,200 trusses $10,680 $15,458 18,200 trusses 17,200 trusses References Work-in-process inventory, February 1 Direct materials: 100complete Conversion: 209 complete Units started during February Units completed during February and transferred out Work-in-process inventory, February 29 Direct materials: 100% complete Conversion: 409 complete Costs incurred during February Direct materials Conversion $59,240 $92, 292 Required Using the FIFO method, calculate the following: 1-a. Costs per equivalent unit (Round your answers to 4 decimal places.) 1-b. Cost of goods completed and transferred out. (Do no round your intermediate calculations. Round your final answer to the nearest whole dollar)

Answer 1

Alvis Corporation Supply Company Calculation of closing WIP: Opening WIP (A) Units introduced (B) Total input (C = A +B) Completed Production (D) Closing WIP (E=C-D) 4200 18200 22400 17200 5200 Calculation of unit cost or cost per equivalent unit: Opening Current Total Completed WIP Equiv. Total Cost Element WIP Cost Cost Units Units Equiv. Units Direct Materials 10680 59240 69920 17200 5200 22400 Conversion cost 15458 92292 107750 17200 2080 19280 26138 177670 Cost per Units 3.12 5.59 8.71 Cost per unit = Total Cost / Total Equivalent units Calculation of Cost of goods completed and cost of goods remaining in WIP: Total Work in Progress Materials Conversion Completed units Calculation 5200 x 3.12 2080 x 5.59 17200 x 8.71 Amount 16231 11624 27856 149814 Now the controller is asking to increase the ending inventory completeion from 40% to 60% .In the given case it should not be increased as it would lead to reduction in cost of goods sold and overstatement of ending inventory thereby leading to more profits. This is fraudulent reporting Also closing inventory will be shown as opening inventory in next period and hence in effect if profits are overstated in this period they will be understated in next.So there is no need to change the percentage of increas in ending in inventory completeion.Effect iin unit cost is stated below: Cost per Units Work in Progress Materials Conversion Opening Current WIP Cost 10680 59240 15458 92292 26138 Total Cost 69920 107750 177670 Completed WIP Equiv. Units Units 17200 5200 17200 3120 Total Equiv. Units 22400 20320 5.30 8.42 Reduction in units cost = $8.71 - $8.42 = 40.29