Question

The following information was extracted from the accounting records of Nimoy Mfg. LLP:

• On February 5, 2019, Nimoy Mfg. LLP ordered 250,000 pounds of material from its supplier at a total purchase price of $360,000.    The materials were to be shipped via Scott Transporter Co. under FOB Shipping Point terms.

• On February 12, 2019, Nimoy Mfg. LLP received the goods with an invoice from its supplier that included a 10% volume discount off the original purchase price.

• On February 13, 2019, the appropriate party received an invoice from Scott Transporter Co. for $2,500 of freight charges.

• On February 15, 2019, Nimoy Mfg. LLP incurred $35,500 in costs to prepare the materials for use in its manufacturing process.

• During the remainder of February 2019, Nimoy Mfg. LLP transferred 185,000 pounds of the materials purchased earlier in the month into the factory

Compute the Historic Cost per Unit of the materials purchased and prepared by Nimoy Mfg. LLP during February 2019.

Compute the Total Cost of the Raw Materials Inventory of Nimoy Mfg. LLP at February 28, 2019.

Compute the Total Cost of the Direct Materials transferred into production by Nimoy Mfg. LLP during February 2019

Answer 1

FOB shipping point terms means that the buyer of the goods will have to bear the delivery related costs. In the given case, Nimoy LLP will have to bear the freight charges.

1. Historic Cost per unit (of the materials purchased & prepared during February, 2019) =

(Purchase Price - Discount + Freight charges + processing costs) / Volume

= [($360,000-10%*$360,000) + $2,500 +$35,500)] / 250,000 pounds

= $1.448

2. Total Cost of Raw Materials inventory at February 28, 2019 (closing inventory)

= (Opening & processed inventory - transferred inventory) * Cost per unit

= (250,000 - 185,000) * $1.448

= $94,120

3. Total Cost of Raw Materials transferred into production

Units transferred * Cost per unit

= 185,000 pounds * $1.448

= $267,880