Victory Company uses FIFO process costing to account for its production costs. D
ID: 2594473 • Letter: V
Question
Victory Company uses FIFO process costing to account for its production costs. Direct labor is added evenly throughout the process. Direct materials are added at the beginning of the process. During November, the company transferred 700,000 units of product to finished goods. At the end of November, the goods in process inventory consists of 180,000 units that are 30% complete with respect to labor. Beginning inventory had $420,000 of direct materials and $139,000 of direct labor cost. The direct material cost added in November is $2,220,000, and the direct labor cost added is $3,254,000.
Beginning goods in process consisted of 60,000 units that were 100% complete with respect to direct materials and 80% complete with respect to direct labor. Of the 700,000 units completed, 60,000 were from beginning goods in process and 640,000 units were started and completed during the period.
Compute both direct labor cost and direct materials cost assigned to (a) units completed and transferred out and (b) ending goods in process inventory. (Round "Cost per EUP" to 2 decimal places.)
[The following information applies to the questions displayed below.]
Explanation / Answer
Solution:
First of all we need to understand the treatment of different items under FIFO method in process costing.
FIFO Method in Process Costing
Physical Units Count
In FIFO method, the unit of beginning inventory is completed first and then Units received during the period is completed.
Equivalent units of Material
In FIFO method,
- First we calculate the cost per equivalent units of material and conversion by using the cost incurred during the current period i.e. current period cost and divide by equivalent units of production.
- While calculating the equivalent cost per unit of production beginning WIP cost is ignored.
Cost Accounted for:
Cost of Beginning Units is the sum of following
(i) Current Period Cost (i.e. the cost of equivalent production units part of beginning inventory completed during the period and
(ii) the cost of beginning inventory
The part of beginning inventory completed during the period is calculated by multiplying the cost of equivalent units with the completed equivalent part of beginning units during the current period
Ending Inventory
The Ending Inventory is valued at current period cost i.e. the cost added during the current period/month.
Calculation of Equivalent Units and Cost per Equivalent Unit
Equivalent Units
Whole Units
Direct Material
Direct Labor
Beginning goods in process
(100% complete with r/s to material and 80% complete w/r to labor and 20% Complete in during the period w/r to labor)
60000
0
12000
Started and completed during the period
640,000
640,000
640,000
Transferred to finished goods in July
700,000
640,000
652,000
Ending goods in process
(100% complete w/r to material and 30% complete w/r to labor)
180,000
180,000
54,000
Total units to be assigned cost
880,000
820,000
706,000
Cost Information
Direct materials
Direct labor
Cost per Equivalent Unit:
Total Cost added during the period
$2,220,000
$3,254,000
Total equivalent units
820,000
706000
Cost per Equivalent Unit
$2.71
$4.61
Part 3(a) -- Cost assigned to completed and transferred out units
Cost allocated to completed and partially completed units:
Direct materials
Direct labor
Total
Beginning goods in process (420,000 + 139,000)
$559,000
To complete Beginning goods in process
$0
$55,320
(DL Equi Units 12,000 Units x DL Cost per EUP $4.61)
$55,320
Cost of completed beginning goods in process
$614,320
(559,000 + 55,320)
Started and completed in July
$1,734,400
(640,000 Eq. Unit x $2.71 Cost per EUP)
$2,950,400
(640,000 Eq. Unit x $4.61 Cost per EUP)
$4,684,800
Cost of Total Units Completed & Transferred Out (Part 3(a))
$5,299,120
Cost assigned to completed and transferred out units = $5,299,120
Part 3(b) – Cost assigned to ending goods in process inventory
Direct materials
Direct labor
Total
Ending goods in process
$487,800
(Eq.unit 180,000 Units x $2.71 Cost per EUP)
$248,940
(54,000 Eq. Unit x $4.61 Cost per EUP)
$736,740
Cost assigned to ending goods in process inventory = $736,740
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Equivalent Units
Whole Units
Direct Material
Direct Labor
Beginning goods in process
(100% complete with r/s to material and 80% complete w/r to labor and 20% Complete in during the period w/r to labor)
60000
0
12000
Started and completed during the period
640,000
640,000
640,000
Transferred to finished goods in July
700,000
640,000
652,000
Ending goods in process
(100% complete w/r to material and 30% complete w/r to labor)
180,000
180,000
54,000
Total units to be assigned cost
880,000
820,000
706,000
Cost Information
Direct materials
Direct labor
Cost per Equivalent Unit:
Total Cost added during the period
$2,220,000
$3,254,000
Total equivalent units
820,000
706000
Cost per Equivalent Unit
$2.71
$4.61
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.