Question

Plemmon Company adds materials at the beginning of the process in the forming department, which is the first of two stages of its production cycle. Information concerning the materials used in the forming department in April follows:

	Materials
	Units	Costs
Work in process at April 1	15,000	$ 8,000
Units started during April	60,000	$38,500
Units completed and transferred to next department
during April	65,000

Using the FIFO method, what is the cost of materials in work in process at April 30 (round unit calculations to the nearest cent)?

Answer 1

The first in, first out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold.

Under the FIFO method, the earliest goods purchased are the first ones removed from the inventory account. This results in the remaining items in inventory being accounted for at the most recently incurred costs, so that the inventory asset recorded on the balance sheet contains costs quite close to the most recent costs that could be obtained in the marketplace.

As FIFO method is followed, the goods purchased first will be transferred first to the next department.

That is why 15,000 units of opening inventory will be first transferred to next department as shown below and then the balance units should be transferred from the purchases during the year.

Particulars	Units	Cost $
Opening	15,000	$8,000
Add: Units started during the year	60,000	$38,500
Less: Transferred to next department	15,000	$8,000
	50,000	$32083.33*
Work in progress	10,000	$6,416.67

* $38500/60,000*50,000= $32083.33

Therefore, cost of material in the work in progress at April 30 is $6,146.67.