Chapter 20, Problem 5APSA

To determine

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:

To prepare process cost summary following FIFO method.

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

Conclusion:

Process cost summary based on FIFO method is given above.

To determine

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 Journal Entry to transfer the completed units of Finished Goods Inventory.

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

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