Question

Thompson’s Tea makes tea kettles. It uses a process costing system to cost its products. The company makes the kettles in three departments: Assembly, Coating, and Packaging. In the Assembly department the direct materials along with conversion costs are added evenly throughout the process.

The cost accountant is completing the production report for the month of April. At the beginning of the month there were 3,500 kettles that had 60% of the work completed in March. 19,000 kettles were started in the month of April and 2,500 remain in ending inventory at the end of April. This ending inventory is 20% complete. The rest were completed and transferred to the Coating Department in April.

The cost accountant must determine how much of the following costs should be transferred to the Coating Department and how much remains in ending inventory.

Cost of beginning work-in-process:

• Direct materials​$ 4,830

• Conversion costs​$ 2,625

Cost added during April:

• Direct material​$42,320

• Conversion costs​$23,000

Required:

b. Using the first-in, first-out (FIFO) method determine the assignment of the cost of tea kettles transferred-out to Coating and ending inventory for the Assembly department for the month of April. Use the form on the last page of this exam.

c. Thompson’s Tea has used First in First out costing for the last 15 years. The controller wants to know if it is beneficial to continue using this method instead of the weighted average method. Provide the controller with your recommendation. Include appropriate calculations to back up your recommendation.

Answer 1

Cost transferred to coating department
Total inventory (Quantity)	20000	3500+16500
Total Direct material cost	$     44,802	8050+36752
Total conversion cost	$     24,349	4375+19974
Total Cost transferred to coating department	$     69,150	total direct material cost + total conversion cost

Ending inventory cost	qty	Direct material cost for 100% complete	Conversion Cost for 100% complete	total cost	calculation
ending inventory (if 100% complete)	2500	$                             5,568	$                                      3,026	$                                      8,595
cost of ending inventory for 20% complete	2500	$                             1,114	$                                          605	$                                      1,719	(20%*(5568+3026)

Particulars	Quantity	%of completion	Direct material Cost for 60% complete	Conversion Cost for 60% complete	Direct material Cost for 100% complete	Conversion Cost for 100% complete	Total cost
Opening inventory	3500.00	60%	$                                4,830.00	$                                2,625.00	$                                  8,050	$                              4,375	$          12,425
New Inventory on this month	19000				$                                42,320	$                           23,000	$          65,320
100% complete	16500	100%			$                                36,752	$                           19,974	$          56,725
20% complete; ending inventory wip	2500				$                            5,568.42	$                        3,026.32	$            8,595

Calculation

Particulars	Direct material cost for 100% complete	Conversion Cost for 100% complete
Opening inventory	4830/60%	2625/60%
New Inventory on this month
100% complete	42320*16500/19000	23000*16500/19000
20% complete; ending inventory WIP	42320*2500/19000	23000*2500/19000