Question

Question: During May, the production department of a process manufacturing system completed a number of units of a product and transferred them to finished goods. Of these transferred units, 37,500 were in process in the production department at the beginning of May and 150,000 were started and completed in May. May’s beginning inventory units were 60% complete with respect to materials and 40% complete with respect to conversion. At the end of May, 51,250 additional units were in process in the production department and were 60% complete with respect to materials and 20% complete with respect to conversion. The production department had \(505,035 of direct materials and \)396,568 of conversion cost charged to it during May. Its beginning inventory included \(74,075 of direct materials cost and \)28,493 of conversion cost.

• 1.Compute the number of units transferred to finished goods.
• 2.Compute the number of equivalent units with respect to both materials used and conversion used in the production department for May using the FIFO method.
• 3.Compute the direct materials cost and the conversion cost per equivalent unit for the department.
• 4.Using the FIFO method, assign May’s costs to the units transferred to finished goods and assign costs to its ending work in process inventory.

Short answer

• 1)The total units transferred to finished goods is187,500
• 2)Equivalents production unit for direct and indirect material is195,750 and182,750.
• 3) The cost per unit of production for direct and indirect material is$2.58 and$2.17 per EUP.
• 4)Total costs accounted for$1,004,170.50.

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.

(1) Computing the number of units transferred to finished goods

Units in beginning inventory	37,500
Units started and completed	150,000
Total units transferred to finished goods	187,500

(2) Computing of the number of equivalent units and conversion used in the production department

	Direct Materia	EUP- Conversion
Units to complete beginning goods in process
Direct material (37 ,500$\times$40%)	15,000
Direct Labor (37 ,500 $\times$60%)		22,500
Units started and completed	150,000	150,000
Units in ending work in the process
Direct material (51 ,250$\times$60%)	30,750
Direct Labor (51,250$\times$20%)	________	10,250
Equivalent units of production	195,750	182,750

(3) Computing the direct materials cost and the conversion cost per equivalent unit for the department

	Direct Material	EUP- Conversion
Costs incurred during this period	$505,035	$396,568
Equivalent units of production (EUP)	195,750	182,750
Cost per unit of production	$2.58 per EUP	$2.17 per EUP

(4) Assigning May’s costs to the units transferred to finished goods and assigning costs to its ending work in process inventory.

Beginning inventor cost				$1,02,568 ($74,075 +$28,493)
Cost to complete units in beginning inventory	EUP	Cost per EUP	Total cost
Direct material	15,000	$2.58	$38,700.00
Conversion	22,500	$2.17	$48,825.00
Total cost to complete beginning inventory				$87,525
Cost of units started and completed:	EUP	Cost per EUP	Total cost
Direct materials	150,000	2.58	$387,000.00
Conversion	150,000	2.17	$325,500.00
The total cost of units started and completed				$712,500.00
Total cost of units transferred out				$902,593.00
Costs of ending work in process	EUP	Cost per EUP	Total cost
Direct materials	30,750	$2.58	$79,335.00
Conversion	10,250	$2.17	$22,242.50
The total cost of ending work in the process				$101,577.50
Total costs accounted for				$1,004,170.50