Question

 

Pacific Ink had beginning work-in-process inventory of $1,069,960 on October 1. Of this amount, $459,200 was the cost of direct materials and $610,760 was the cost of conversion. The 63,000 units in the beginning inventory were 30 percent complete with respect to both direct materials and conversion costs.

During October, 132,000 units were transferred out and 45,000 remained in ending inventory. The units in ending inventory were 80 percent complete with respect to direct materials and 40 percent complete with respect to conversion costs. Costs incurred during the period amounted to $3,578,400 for direct materials and $4,182,090 for conversion.

a-1. Compute the cost of goods transferred out and the cost of ending inventory using the FIFO method.

a-2. Is the ending inventory higher or lower under the weighted-average method compared to FIFO?

Compute the cost of goods transferred out and the cost of ending inventory using the FIFO method

Cost of goods transferred out
Cost of ending inventory

Is the ending inventory higher or lower under the weighted-average method compared to FIFO?

Answer 1

 

(a) Equivalent unit of production

	Whole Unit	% material	EUP-material	% conversion	EUP-conversion
Beginning WIP	63000	70%	44100	70%	44100
Unit started and completed	69000	100%	69000	100%	69000
Ending WIP	45000	80%	36000	40%	18000
Equivalent unit	177000		149100		131100

(b) Cost per equivalent unit

Material	Conversion
Cost added	3578400	4182090
Equivalent unit	149100	131100
Cost per equivalent unit	24	31.90

(c) Cost of goods transferred out and ending inventory as per FIFO method

	Direct material	Conversion	Total
Cost of unit transferred out	(113100*24+459200) = 3173600	(113100*31.90+610760) = 4218650	7392250
Ending work in process	36000*24 = 864000	18000*31.90 = 574200	1438200

(D) Ending inventory would be higher under Weighted average method.