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Concept explainers
Introduction:
In
Equivalent units in FIFO method are calculated based on the degree of completion of Opening units of WIP.
Cost estimate – Estimation of Work in progress quantity and degree of completion are very challenging in process industries which have 24*7 nature of operations.
To Calculate:
To prepare process cost summary following FIFO method.
![Check Mark](/static/check-mark.png)
Explanation of Solution
Solution and Explanation:
TAMAR CO. | |||||
PROCESS COST SUMMARY (FIFO BASIS) | |||||
DIRECT MATERIAL | |||||
DETAILS | NO OF UNITS | % COMPLETE | EQUIVALENT UNIT | COST $ | |
OPENING BALANCE | 3,000 | 100% | 3,000 | 19,800 | |
COST INCURRED DURING THE MONTH | 496,800 | ||||
516,600 | |||||
OPENING UNITS COMPLETED AND TRANSFERRED | 3,000 | 0% | - | ||
UNITS COMPLETED AND TRANSFERRED | 19,200 | 100% | 19,200 | ||
CLOSING WORK IN PROGRESS | 2,400 | 100% | 2,400 | ||
21,600 | |||||
Per Unit cost of Equivalent units | 23.00 | ||||
COST OF OPENING UNITS | 19,800 | ||||
COST OF UNITS COMPLETED AND TRANSFERRED | 441,600 | ||||
COST OF WORK IN PROGRESS | 55,200 | ||||
TOTAL | 516,600 | ||||
CONVERSION COST | TOTAL MATERIAL AND CONVERSION | ||||
DETAILS | NO OF UNITS | % COMPLETE | EQUIVALENT UNIT | COST | |
OPENING BALANCE | 3,000 | 40% | 1,200 | 221,940 | 241,740 |
COST INCURRED DURING THE MONTH | 2,165,940 | 2,662,740 | |||
2,387,880 | 2,904,480 | ||||
OPENING UNITS COMPLETED AND TRANSFERRED | 3,000 | 60% | 1,800 | ||
UNITS COMPLETED AND TRANSFERRED | 22,200 | 100% | 19,200 | ||
WORK IN PROGRESS | 2,400 | 80% | 1,920 | ||
22,920 | |||||
Per Unit cost of Equivalent units | =2165940/22920 | 94.50 | |||
OPENING UNITS COMPLETED AND TRANSFERRED | 392,040 | 411,840 | |||
COST OF UNITS COMPLETED AND TARNSFERRED | 1,814,400 | 2,256,000 | |||
COST OF WORK IN PROGRESS | 181,440 | 236,640 | |||
TOTAL | 2,387,880 | 2,904,480 |
Conclusion:
Process cost summary based on FIFO method is given above.
Introduction:
In process cost summary – we are calculating the cost of producing each unit of item produced. We can use FIFO or Weighted Average Method, In FIFO method opening inventory and its degree of valuation and its associated cost is used as it is. Only current month cost is allocated to units completed during the month – either from opening WIP or from units introduced and completed during the month or units in closing stock.
Equivalent units in FIFO method are calculated based on the degree of completion of Opening units of WIP.
Cost estimate – Estimation of Work in progress quantity and degree of completion are very challenging in process industries which have 24*7 nature of operations.
To Calculate:
Prepare the
![Check Mark](/static/check-mark.png)
Answer to Problem 5APSA
Solution:
Journal entry is as follows:
Account Head | $ | $ |
Finished Goods Inventory | 2,667,840 | |
Production cost account | 2.667,840 | |
Finished Goods transferred from Production process cost account |
Explanation of Solution
Explanation:
TAMAR CO. | |||||
PROCESS COST SUMMARY (FIFO BASIS) | |||||
DIRECT MATERIAL | |||||
DETAILS | NO OF UNITS | % COMPLETE | EQUIVALENT UNIT | COST $ | |
OPENING BALANCE | 3,000 | 100% | 3,000 | 19,800 | |
COST INCURRED DURING THE MONTH | 496,800 | ||||
516,600 | |||||
OPENING UNITS COMPLETED AND TRANSFERRED | 3,000 | 0% | - | ||
UNITS COMPLETED AND TRANSFERRED | 19,200 | 100% | 19,200 | ||
CLOSING WORK IN PROGRESS | 2,400 | 100% | 2,400 | ||
21,600 | |||||
Per Unit cost of Equivalent units | 23.00 | ||||
COST OF OPENING UNITS | 19,800 | ||||
COST OF UNITS COMPLETED AND TRANSFERRED | 441,600 | ||||
COST OF WORK IN PROGRESS | 55,200 | ||||
TOTAL | 516,600 | ||||
CONVERSION COST | TOTAL MATERIAL AND CONVERSION | ||||
DETAILS | NO OF UNITS | % COMPLETE | EQUIVALENT UNIT | COST | |
OPENING BALANCE | 3,000 | 40% | 1,200 | 221,940 | 241,740 |
COST INCURRED DURING THE MONTH | 2,165,940 | 2,662,740 | |||
2,387,880 | 2,904,480 | ||||
OPENING UNITS COMPLETED AND TRANSFERRED | 3,000 | 60% | 1,800 | ||
UNITS COMPLETED AND TRANSFERRED | 22,200 | 100% | 19,200 | ||
WORK IN PROGRESS | 2,400 | 80% | 1,920 | ||
22,920 | |||||
Per Unit cost of Equivalent units | =2165940/22920 | 94.50 | |||
OPENING UNITS COMPLETED AND TRANSFERRED | 392,040 | 411,840 | |||
COST OF UNITS COMPLETED AND TARNSFERRED | 1,814,400 | 2,256,000 | |||
COST OF WORK IN PROGRESS | 181,440 | 236,640 | |||
TOTAL | 2,387,880 | 2,904,480 |
Conclusion:
Journal entry is as follows:
Account Head | $ | $ |
Finished Goods Inventory | 2,667,840 | |
Production cost account | 2.667,840 | |
Finished Goods transferred from Production process cost account |
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Chapter 20 Solutions
Fundamental Accounting Principles
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