Question

Hassan Limited uses the FIFO method in its process costing system. The data given relates to the most recent month of operations for one of the processing departments:

Opening units

400

Units started into production

3,000

Closing units

300

Material

Conversion

Percentage completion of opening inventory

80%

40%

Percentage completion of closing inventory

70%

60%

The cost of beginning inventory was Rs.10,040 of which Rs.7,120 was for materials and the remainder was for conversion cost. The costs added during the month amounted to Rs.132,730 of which Rs.76,048 was for materials and the remainder was for conversion cost.   

Required:   

1. Compute the equivalent units of material and of conversion in the ending inventory. (2 Mark)

2. Compute the equivalent units of material and of conversion that were required to complete the beginning inventory. (2 Mark)

3. Determine the number of units started and completed during the month. (1 Mark)

4. Compute the cost per equivalent unit for materials and for conversion and the total cost per equivalent unit. (1 Mark)

5. Determine the cost of units transferred out.

6. Determine the cost of ending inventory

Answer 1

Given information:

Inventory	Units	% Completion material	% Completion Conversion	Cost	Materials	Conversion
Opening	400	80%	40%	10040	7120	2920
Units started into production	3000
Closing	300	70%	60%
Costs during month
Materials	132720
Conversion	76048

1.

Equivalent unit in Closing inventory
For Materials	210	(300 x 70%)
For Conversion	180	(300 x 60%)

2.

Equivalent units required to complete beginning inventory
For Materials	80	[400 x (100-80)%]
For Conversion	240	[400 x (100-40)%]

3.

Number of Units started and completed during the month
Units started into production	3000
Less: Closing inventory	-300
Number of Units started and completed during the month	2700

4.

Cost per equivalent unit for materials
Equivalent units during month for materials
Equivalent units completed for beginning inventory	80
Add: Units produced and completed durin month	2700
Add: Units produced and completed during month	210
Equivalent units during month for materials (a)	2990
Cost of Materials (b)	132720
Cost per equivalent unit for materials (b/a)	44.39
Cost per equivalent unit for conversion
Equivalent units during month for conversion
Equivalent units completed for beginning inventory	240
Add: Units produced and completed during month	2700
Add: Equivalent units in Closing inventory	180
Equivalent units during month for conversion (a)	3120
Cost of Conversion (b)	76048
Cost per equivalent unit for conversion (b/a)	24.37

5.

Cost of units transferred out
Opening Inventory
Cost incurred in previous month for:
Materials	7120
Conversion	2920
Cost incurred during present month
Materials (80 x 44.39)	3551
Conversion (240 x 24.37)	5850
Units produced and completed during this month
Materials (2700 x 44.39)	119847
Conversion (2700 x 24.37)	65811
Total Cost for units transferred out	205099

6.

Cost of ending inventory
Materials (210 x 44.39)	9321
Conversion (180 x 24.37)	4387
Total Cost of closing inventory	13709