Question

Equivalent Units and Product Cost Report—FIFO Method

In its first month's operations (January 2016), Allred Company's Department 1 incurred charges of $165,000 for direct materials (10,000 units), $70,000 for direct labor, and $84,700 for manufacturing overhead. At month-end, 8,800 units had been finished and transferred out. The remaining units were finished with respect to material but only 25% complete with respect to conversion costs.

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

b. The cost per equivalent unit for material and conversion.

c. The total cost assigned to the units transferred out.

d. The total cost assigned to the ending inventory.

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

Product Cost Report
			Direct Materials		Conversion Costs
Beginning Inventory	$		$		$
Current
Total Costs to Account For	$		$		$
÷ Total Equivalent Units
Average cost / Equivalent unit			$	b.	$	b.
Beginning inventory
Costs incurred in Month 0	$
Costs incurred in Month 1
Started and finished
Cost of Goods Manufactured	$	c.
Ending Inventory:
Direct Materials	$
Conversion costs
Cost of Ending Inventory	$	d.
Total Costs Allocated	$	e.

Answer 1

• Requirement, as asked

Product Cost Report
		Direct	Conversion
	TOTAL	Materials	Costs
Beginning Inventory	$0	$0	$0
Current	$319,700	$165,000	$154,700
Total Costs to Account For	$319,700	$165,000	$154,700
÷ Total Equivalent Units		10,000 [8800 + 1200]	9,100 [8800 + (1200 x 25%)]
Average cost / Equivalent unit		$16.50	$17.00

Beginning inventory
Costs incurred in Month 0	$0
Costs incurred in Month 1	$0
Started and finished	$294,800 [8800 x (16.50 + 17)]
Cost of Goods Manufactured		$294,800
Ending Inventory:
Direct Materials	$19,800 [1200 x 16.5]
Conversion costs	$5,100 [1200 x 25% x 17]
Cost of Ending Inventory		$24,900
Total Costs Allocated		$319,700