Question

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Pacific Ink had beginning work-in-process inventory of $890,960 on October 1. Of this amount, $358,200 was the cost of direct materials and $532,760 was the cost of conversion. The 62,000 units in the beginning inventory were 25 percent complete with respect to both direct materials and conversion costs.

During October, 130,000 units were transferred out and 44,000 remained in ending inventory. The units in ending inventory were 75 percent complete with respect to direct materials and 35 percent complete with respect to conversion costs. Costs incurred during the period amounted to $3,304,000 for direct materials and $4,130,820 for conversion.

A1. Compute the cost of goods transferred out and the cost of ending inventory using the FIFO method. (Do not round intermediate calculations.)

	Cost of goods transferred out Cost of ending inventory

A2. Is the ending inventory higher or lower under the weighted-average method compared to FIFO?

	Higherradio button unchecked1 of 2 Lowerradio button unchecked2 of 2

Answer 1

Equivalent Units

	Materials	Conversion Cost
Beginning WIP	(62000 * 75%) =46500	(62000 * 75%) =46500
Units started and completed	68000	68000
Ending WIP	(44000 * 75%) =33000	(44000 * 35%) =15400
Equivalent Units	147500	129900

Cost per Equivalent Unit

	Materials	Conversion Cost
Cost incurred during the period(A)	$3304000	$4130820
Equivalent Units(B)	147500	129900
Cost per EUP (A/B)	$22.40	$31.80

A1. Compute the cost of goods transferred out and the cost of ending inventory using the FIFO method

Cost of goods transferred out	$7096860
Cost of ending inventory	$1228920

	Cost of Goods transferred out		Cost of Ending Inventory
	Materials	Conversion	Materials	Conversion
Beginning WIP Cost	$358200	$532760	0	0
Cost incurred in current period	[(68000 + 46500) * $22.40] =$2564800	[(68000 + 46500) * $31.80] =$3641100	(33000 * $22.40) =$739200	(15400 * $31.80) =$489720
Total	$2923000	$4173860

Cost of goods transferred out = $2923000 + $4173860 = $7096860

Cost of ending inventory = $739200 + $489720 = $1228920

A2. Is the ending inventory higher or lower under the weighted-average method compared to FIFO?

HIGHER