Question

The smelting department of Company X has the following production and cost data for September:

• Production: Beginning work in process 200 units that are 100% complete as to materials and 82% complete as to conversion costs; units started into production 1,000 units; units transferred out to next department 950 units; ending work in process are 100% complete as to materials and 42% complete as to conversion costs.

• Manufacturing costs: Beginning work in process TL8,200 materials, TL9,270 labor, and TL2,200 manufacturing overhead costs. In the current period, TL50,500 worth of materials, TL25,700 worth of labor and TL32,000 worth of manufacturing overhead costs are incurred.

Question: Compute the conversion cost portion of the ending inventory if the company uses FIFO method to compute equivalent units. method to compute equivalent units.

Answer 1

Under FIFO method units started first are transferred out first.So of the units completed and transferred out ,200 units is from beginning work in process inventory and remaining is those 950 -200 = 750 units started in current period .

Ending work in process inventory =Beginning +started -transferred out

                     = 200+1000 -950

                    = 250 units

	Conversion cost
Units completed and transferred out
Beginning work in process	200(1-.82 already completed)=36
current period production	750*100%=750
Ending work in process inventory	250*42%= 105
Equivalent units of production	891

	Conversion cost per equivalent unit
Labor cost	25700
Manufacturing overhead	32000
Total conversion cost for current period	57700`
Equivalent units of production	891
cost per equivalent unit	57700/891 =$ 64.75870

Conversion cost portion of ending inventory = Conversion cost per equivalent unit * Equivalent unit for Ending work in process inventory -conversion

                    = 64.7587 * 105

                   = $ 6800