Hello there! If someone else reads this, feel free to correct my explanation if necessary :)
The 16,000 conversion costs refer only to 70% of the beginning inventory, which is completed and transferred out within the period. That's on top of the amount incurred for the conversion costs in the current period.
------------------------------
Alfred Karl Maravillas
North Polanco
Philippines
------------------------------
Original Message:
Sent: 05-04-2023 02:20 AM
From: Kirti Sheth
Subject: FIFO EUP
A.P. Hill Corporation uses a process-costing system. Products are manufactured in a series of three departments. The following data relate to Department Two for the month of February: Beginning work-in-process | | (70% complete) | 10,000 units | Goods started in production | 80,000 units | Ending work-in-process | | (60% complete) | 5,000 units |
| | The beginning work-in-process was valued at $66,000, consisting of $20,000 of transferred-in costs, $30,000 of materials costs, and $16,000 of conversion costs. Materials are added at the beginning of the process; conversion costs are added evenly throughout the process. Costs added to production during February were Transferred-in | $16,000 | Materials used | 88,000 | Conversion costs | 50,000 |
|
|
| | |
Assume that the company uses the first-in, first-out (FIFO) method of inventory valuation. Under FIFO, how much conversion cost did A.P. Hill transfer out of Department Two during February?
Can someone please help me understand why 16000 of beginning conversion cost was added to current conversion cost. Since its FIFO Shouldnt current cost i.e. 50000 to be taken in account.
Explanation given in otb
For conversion costs, the equivalent-unit calculation under the FIFO method isBeginning WIP | 10,000 units | × | 30% | = | 3,000 | Started and completed | 75,000 units | × | 100% | = | 75,000 | Ending WIP | 5,000 units | × | 60% | = | 3,000 | | | | | | FIFO EUP for conversion | | | 81,000 | | | | | |
The amount transferred out will include conversion costs incurred during the current period plus any amount in beginning inventory. The conversion cost includes $16,000 in beginning inventory, all of which would have been transferred out. The $50,000 incurred during the month is divided by the 81,000 equivalent units to arrive at a unit cost for the current period. Given that 78,000 equivalent units (3,000 EUP in BWIP + 75,000 EUP started and completed) of current-period production were completed and transferred, the total conversion cost transferred out was $64,148.15 [$16,000 BWIP + (78,000 FIFO EU) × ($50,000 ÷ 81,000)].
|
|
|