Question

Equivalent Units and Product Cost Report—FIFO Method

In its first month of operations (May of 2019), Allred Company’s Department 1 incurred charges of $72,000 for direct material (9,000 units), $38,700 for direct labor, and $13,500 for manufacturing overhead. At month-end, 8,500 units had been finished and transferred out. Those units remaining were finished with respect to material but only 40% finished with respect to conversion.

Assuming Allred uses the FIFO method and that materials are added at the beginning of the process and conversion costs are incurred evenly throughout the period, compute the following:

The equivalent units for materials and conversion costs.

The cost per equivalent unit for materials and conversion costs.

The total cost assigned to the units transferred out.

The total cost assigned to the ending inventory.

Prove that your solutions to requirements (c) and (d) sum to the total costs to be accounted for.

Answer 1

B с A 1 1 2 3 4 Units started and completed 5 Units, beginning work in process 6 Units, ending work in process 7 Equivalent units of output 8 9 2 10 11 Current costs 12 Divided by equivalent units 13 Cost per equivalent unit 14 Equivalent Units Direct Materials Conversion Costs 8,500 8,500 0 0 500 200 9,000 8.700 Direct Materials Conversion Costs $72,000 $52,200 9.000 8.700 $8.00 $6.00 15 c. 16 Total cost assigned to the units transferred out $119,000 17 18 d. 19 Total cost assigned to the ending inventory $5,200 20 21 e. 22 Total of (c) and (d) $124,200 23 24 Cost to be accounted for $124,200 25 Thus, solutions to requirements (c) and (d) sum to the total costs to be accounted for.

Calculations are shown below: A B с 1 1 2 Equivalent Units 3 Direct Materials Conversion Costs 4 Units started and completed =8500*100% =8500*100% 5 Units, beginning work in process 10 10 6 Units, ending work in process =(9000-8500)*100% =(9000-8500)*40% 7 Equivalent units of output =SUM(B4:B6) =SUM(C4:C6) 8 9 2 10 Direct Materials Conversion Costs 11 Current costs 72000 =38700+13500 12 Divided by equivalent units =B7 =C7 13 Cost per equivalent unit =B11/B12 =C11/C12 14 15 c. 16 Total cost assigned to the units transferred out =(B4*B13)+(C4*С13) 17 18 d. 19 Total cost assigned to the ending inventory I=(B6*B13)+(C6*С13) 20 21 e. 22 Total of (c) and (d) =B16+B19 23 24 Cost to be accounted for =B11+C11 25 Thus, solutions to requirements (c) and (d) sum to the total costs to be accounted for.