Question

Pacific Ink had beginning work-in-process inventory of $1,005,960 on October 1. Of this amount, $423,500 was the cost of direct materials and $582,460 was the cost of conversion. The 61,000 units in the beginning inventory were 30 percent complete with respect to both direct materials and conversion costs.

During October, 128,000 units were transferred out and 43,000 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 $3,314,300 for direct materials and $4,022,730 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?

Answer 1

Answer :

a (1) Computation of  cost of goods transferred out and the cost of ending inventory using the FIFO

Step -1

Computation of Equivalent unit

	Material	Conversion
	Unit	% complete	EUP	Unit	% complete	EUP
Beginning WIP	61000	70%	42700	61000	70%	42700
Units started and completed	67000	100%	67000	67000	100 %	67000
Ending wip	43000	80%	34400	43000	40 %	17200
Equivalent unit			144100			126900

Step -2

Computation of cost per equivalent unit

	Material	Conversion
Cost added	$ 3314300	$ 4022730
Equivalent unit	144100	126900
Cost per Equivalent unit	$ 23	$ 31.70

Step -3

Computation of  cost of goods transferred out and the cost of ending inventory

	Material	Conversion	Total
cost of goods transferred out	$ 2946600 ( $ 423500 + 109700 *$ 23)	$ 4059950 ($ 582460 + 109700* $ 31.70)	$ 7006550
cost of ending inventory	$ 791200 ( 34400* $ 23)	$ 545240 ( 17200* $ 31.70)	$ 1336440

a (2) Ending inventory would be higher under weighted average method.