Question

Refer to the data in Problem 16-4A. Assume that Tamar uses the FIFO method to account for its process costing system. The following additional information is available:

• Beginning work in process consisted of 3,000 units that were 100% complete with respect to direct materials and 40% complete with respect to conversion.
• Of the 22,200 units completed, 3,000 were from beginning work in process. The remaining 19,200 were units started and completed during May.

Required

1. Prepare the company’s process cost summary for May using FIFO.

2. Prepare the journal entry dated May 31 to transfer the cost of completed units to finished goods inventory.

Short answer

1. Equivalent units of production for direct material:21,600 units and for conversion:22,920 units.
2. Cost of goods transferred to finished goods inventory:$2,667,840.

Step-by-step solution

Definition of Finished Goods Inventory

Finished goods inventory refers to that inventory that is completely manufactured by the manufacturing unit and is available for sale.

Process cost summary under FIFO

The physical flow of units:

Units to account for		Units accounted for
Beginning work-in-process inventory	3,000	Units completed and transferred out	22,200
Units started this period	19,200	Ending work-in-process inventory	0
Total units to account for	22,200	Total units accounted for	22,200

Calculation of equivalent units of production:

Particular	Direct material	Conversion
Equivalent units beginning work-in-process	0	1,800
Equivalent units started and completed	19,200	19,200
Equivalent units in ending inventory	2,400	1,920
Equivalent units	21,600	22,920

Calculation of cost per equivalent unit:

Particular	Direct material	Conversion
Cost incurred this period	$496,800	$2,165,940
Equivalent units	21,600	22,920
Cost per equivalent unit	$23 per unit	$94.50 per unit

Calculation of cost of units transferred to finished goods inventory:

Particular	Amount $
Cost of beginning work-in-process	$241,740
Cost to complete beginning work in process:
Direct material (0 units)	0
Conversion 1,800 units @ $94.5	170,100
Cost of units started and completed:
Direct material (19,200 @ $23)	441,600
Conversion (19,200 @ $94.5)	1,814,400
Cost of goods transferred to finished goods inventory	$2,667,840

Journal entry to record the transfer of the cost of completed units to finished goods inventory

Date	Accounts and Explanation	Debit ($)	Credit ($)
	Finished goods inventory	2,667,840
	Work-in-process inventory		2,667,840