Question

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

• Beginning work in process consists of 10,000 units that were 75% complete with respect to direct materials and 60% complete with respect to conversion.
• Of the 220,000 units completed, 10,000 were from beginning work in process; the remaining 210,000 were units started and completed during January

Required

1. Prepare the company’s process cost summary for January using FIFO. Round cost per EUP to three decimal places.
2. Prepare the journal entry dated January 31 to transfer the cost of completed units to finished goods inventory

Short answer

1. Conversion EUP, 226,000
2. Cost transferred out, $743,554

Step-by-step solution

Meaning of FIFO

According to the FIFO inventory valuation approach, the first items acquired are the first goods sold. This presumption closely approximates the actual movement of commodities in most businesses, making it the most conceptually acceptable way of valuing inventories.

(a) Preparing company process cost summary

Switch Company
Process cost summary
Particulars	Amount
Cost pertaining to beginning WIP
Material (direct)	$7,500
Conversion	$49,850
Cost Levied to production
Cost pertaining to direct material	$112,500
Cost pertaining to conversion	$616,000
Total cost account for	$785,840
Units to account for	Amount	Units Accounted for	Amount
Beginning WIP	$10,000	Units transferred out	$220,000
Units initiated in this period	$250,000	Ending WIP	$40,000
Net units to account for	$260,000	Net units accounted for	$260,000
Equivalent production units	Material (Direct)	Conversion
Direct material	2,500
Conversion		4,000
Finalized and complete units	210,000 EUP	210,000 EUP
Ending WIP
Material (direct)	20,000 EUP
Conversion		12,000 EUP
Equivalent production unit	232,500 EUP	226,000 EUP
Cost per EUP
Cost incurred during this period	$112,500	$616,000
Equivalent production unit	232,500	226,000
Cost per EUP	$0.48/EUP	$2.72/EUP
Particulars	Direct materials	Conversion
Inventory in the beginning		$57,340
Materials	$1,210
Conversion	$10,904
Net cost pertaining to inventory in the beginning		$12,114
Started and completed cost for direct material	$101,640
Started and completed cost for conversion	$572,460
Net started and completed cost		$674,100
Net transferred out cost		$743,554
Cost pertaining to ending WIP (conversion)	$9,680
Cost pertaining to ending WIP (direct material)	$32,712
Net cost pertaining to Ending WIP		$42,392
Total cost accounted for		$785,946

Note: Amounts are rounded off up to three decimal places

Working notes:

$$\begin{gathered} Costperproductionunitsfordirectmaterial=\frac{Totalcost}{Equivalentproductionunit} \\ =\frac{\$112,500}{232,500} \\ =\$0.48perEUP \end{gathered}$$

$$\begin{gathered} CostperproductionunitsforConversion=\frac{Totalcost}{Equivalentproductionunit} \\ =\frac{\$616,000}{226,000} \\ =\$2.76perEUP \end{gathered}$$

(b) Preparing journal entry

Date	Particulars	Debit ($)	Credit ($)
	Inventory (finished goods)	743,554
	WIP inventory		743,554