Question

Verer Custom Carpentry manufactures chairs in its Processing Department. Direct materials are included at the inception of the production cycle and must be bundled in single kits for each unit. Conversion costs are incurred evenly throughout the production cycle. Inspection takes place as units are placed into production. After inspection, some units are spoiled due to nondetectible material defects. Normally spoiled units generally constitute 4% of the good units transferred out. Data provided for March 20X5 are as follows:

WIP, beginning inventory 3/1/20X5 32,000 units
Direct materials (100% complete)
Conversion costs (85% complete)

Started during March 70,000 units
Completed and transferred out 80,000 units

WIP, ending inventory 3/31/20X5 18,000 units
Direct materials (100% complete)
Conversion costs (80% complete)

Costs:
WIP, beginning inventory:
Direct materials $ 70,000
Conversion costs 40,000
Direct materials added 105,000
Conversion costs added 128,160


What costs are allocated to the ending work-in-process inventory for direct materials and conversion costs, respectively, using the FIFO method of process costing?

A.	$40,000; $25,590
B.	$27,000; $25,920
C.	$28,250; $24,850
D.	$27,500; $23,600

Answer 1

Based on the below calculations, the answer for the question is :-

Option B :- $27,000 ; $25,920

	Particulars	Formula	Direct Materials	Conversion costs
	Direct Materials		1,05,000	1,28,160
	Total Costs to account for		1,05,000	1,28,160
	Equivalent Units		70,000	71,200	Refer Note 1 below
	Cost Per unit	(total Cost/equivalent units)	1.5000	1.8000
	Normally Spoilage %		4%
	Completed Units		80,000
	Spoilage units	(Normal Spoilage % * units completed & transferred)	3200 units
	Abonormal spoilage units	(Opening Stock + Started during march - completed & transferred - closing stock)	(32,000 + 70,000 - 80,000 - 18,000) - 3200
	Abnormal Spoilage Units		800 units
Note 1:-	Equivalent Direct Units(DM)	(Units completed & Transferred - Opening Stock) + Normal Spoilage + Abnormal Spoilage + Closing Stock	(80,000 - 32,000) + 3200 + 800 + 18000 = 70,000 units
	Equivalent Direct Units(Conversion)	(Units completed & Transferred - Opening Stock) + Normal Spoilage + Abnormal Spoilage + Closing Stock	(80,000 - 32,000*85%) + 3200 + 800 + 18,000*80% = 80,000 - 27,200 + 3,200 + 800 + 14,400
					71200 units
	Direct Materials	Ending Inventory * Price per Unit(as determined above)	18,000 *1.50	27,000
	Conversion costs	Ending Inventory of Converstion cost* Price per Unit(as determined above)	18,000 *80% *1.80	25,920

Option A, Option C and Option D are incorrect based on the above calculations.