Question

FIFO Muskoge Company

FIFO Method, Two-Department Analysis Muskoge Company uses a process-costing system. The company manufactures a product that is processed in two departments: Molding and Assembly. In the Molding Department, direct materials are added at the beginning of the process; in the Assembly Department, additional direct materials are added at the end of the process. In both departments, conversion costs are incurred uniformly throughout the process. As work is completed, it is transferred out. The following table summarizes the production activity and costs for February: Molding Assembly Beginning inventories: Physical units 10,000 8,000 Costs: Transferred in $45,400 Direct materials $22,000 Conversion costs $13,800 $16,700 Current production: Units started 25,000 ? Units transferred out 30,000 35,000

Answer 1

I. For Molding Department

Beginning inventory - 10,000 units which is 40% complete [i.e. 100% material (since material is applied in the beginning) and 40% conversion cost] at a cost of $ 35,800 ($ 22,000 for material and $ 13,800 for conversion).

Computing ending inventory -

Ending inventory = Beginning inventory + Units started - Units transferred

= 10,000 + 25,000 - 30,000

= 5,000 units which is 80% complete as given in the question

Reconciliation of units

Beginning WIP + Units started = Units completed from beginning WIP + Units started and completed + Ending inventory

10,000 (given) + 25,000 (given) = 10,000 (since FIFO method) + 20,000 (total completed units is 30,000 out of which 10,000 are from beginning inventory) + 5,000 (as computed above)

35,000 units = 35,000 units

Material and conversion process incurred during the relevant period in equivalent units

	Material	Conversion cost
Beginning inventory (10,000)	Nil (0%)	6,000 (60%)
Started and completed (20,000)	20,000 (100%)	20,000 (100%)
Ending inventory (5,000)	5,000 (100%)	4,000 (80%)
Total	25,000	30,000
Cost incurred during the period (in $)	56,250	106,500
Cost per unit	$ 2.25 (56,250/25,000)	$ 3.55 (106,500/ 30,000)

Hence, total cost per unit is $ 5.80 per unit ($2.25 + $3.55).

Computation of cost

	Beginning inventory	Started and completed	Ending inventory
Opening cost (A)	35,800 (given)	-	-
Material cost (B)	Nil	45,000 (20,000 * 2.25)	11,250 (5,000 * 2.25)
Conversion cost (C)	21,300 (6,000 * 3.55)	71,000 (20,000 * 3.55)	14,200 (4,000 * 3.55)
Total cost incurred during the period (D = B + C)	21,300	116,000	25,450
Total cost (E = A + D)	57,100	116,000	25,450

Cost incurred during the period = 162,750 (21,300 + 116,000 + 25,450)

Cost of units transferred = 173,100 (57,100 + 116,000)

Cost of ending inventory = 25,450

Total cost accounted for = 198,550 (173,100 + 25,450)

II. For assembly Department

Beginning inventory - 8,000 units which is 50% complete [i.e. Nil material (since material is applied at the end) and 50% conversion cost] at a cost of $61,100 ($45,400 for material and $ 16,700 for conversion).

Computing ending inventory -

Ending inventory = Beginning inventory + Units introduced - Units completed

= 8,000 + 30,000 - 35,000

= 3,000 units which is 50% complete as given in the question

Reconciliation of units

Beginning WIP + Units introduced = Units completed from beginning WIP + Units started and completed + Ending inventory

8,000 (given) + 30,000 (given) = 8,000 (since FIFO method) + 27,000 (total completed units is 35,000 out of which 8,000 are from beginning inventory) + 3,000 (as computed above)

38,000 units = 38,000 units

Material and conversion process incurred during the relevant period in equivalent units

	Material	Conversion cost
Beginning inventory (8,000)	8,000 (100%)	4,000 (50%)
Started and completed (27,000)	27,000 (100%)	27,000 (100%)
Ending inventory (3,000)	Nil (0%)	1,500 (50%)
Total	35,000	32,500
Cost incurred during the period (in $)	39,550	136,500
Cost per unit	$ 1.13 (39,550/35,000)	$ 4.20 (136,500/ 32,500)

Hence, total cost per unit is $ 5.33 per unit ($1.13 + $4.20).

Computation of cost

	Beginning inventory	Started and completed	Ending inventory
Opening cost (A)	62,100 (given)	-	-
Material cost (B)	9,040 (8,000 * 1.13)	30,510 (27,000 * 1.13)	Nil (Nil * 1.13)
Conversion cost (C)	16,800 (4,000 * 4.20)	113,400 (27,000 * 4.20)	6,300 (1,500 * 4.20)
Total cost incurred during the period (D = B + C)	25,840	143,910	6,300
Total cost (E = A + D)	87,940	143,910	6,300

Cost incurred during the period = 176,050 (25,840 + 143,910 + 6,300)

Cost of units transferred out = 231,850 (87,940 + 143,910)

Cost of ending inventory = 6,300

Total cost accounted for = 238,150 (231,859 + 6,300)

Cost reconciliation

Cost of beginning inventory                        =             62,100

Cost incurred during the period                 =             1,76,050

Total                                                                      =             238,150

Cost of units transferred out                      =             231,850

Ending WIP                                                         =             6,300

Total                                                                      =             238,150

Lastly, the cost of 30,000 units transferred in Assembly division from Molding division is $ 173,100 (as computed in Part I)