Concept explainers
a.
Prepare a production cost report using FIFO.
a.

Explanation of Solution
First in and first out (FIFO) method:
Under this method cost of units sold and units lying as ending inventory is ascertained on the first in and first out basis. It means units entered in the store first would be sold out first.
Compute the total units of prior department, materials, labor and manufacturing
Particulars | Physical units | Prior department | Materials | Labor | Manufacturing overhead |
Beginning work-in-process inventory | 75,000 | ||||
Units started this period | 375,000 | ||||
Total units | 450,000 | ||||
Completed and transferred out | |||||
Beginning work-in-process inventory | 75,000 | - | - | 30,000(1) | 37,500(2) |
Started and currently completed | 225,000 | 225,000 | 225,000 | 225,000 | 225,000 |
Units in ending work-in-process inventory | 150,000 | 150,000 | 135,000(3) | 105,000(4) | 52,500(5) |
Total units | 450,000 | 375,000 | 360,000 | 360,000 | 315,000 |
Table: (1)
Compute the cost per equivalent unit of prior department, materials, labor and manufacturing overhead:
Particulars | Total | Prior department | Materials | Labor | Manufacturing overhead |
Costs in beginning work-in-process inventory | $ 382,800 | $ 192,000 | $ 120,000 | $ 43,200 | $ 27,600 |
Current period costs | $ 1,865,400 | $ 960,000 | $ 576,000 | $ 216,000 | $ 113,400 |
Total costs | $ 2,248,200 | $ 1,152,000 | $ 696,000 | $ 259,200 | $ 141,000 |
Cost per equivalent unit | |||||
Prior department | $ 2.56(6) | ||||
Materials | $ 1.60(7) | ||||
Labor | $ 0.60(8) | ||||
Manufacturing overhead | $ 0.36(9) |
Table: (2)
Compute the total cost of prior department, materials, labor and manufacturing overhead:
Particulars | Total | Prior department | Materials | Labor | Manufacturing overhead |
Transferred out: | |||||
Costs from beginning inventory | $ 382,800 | $ 192,000 | $ 120,000 | $ 43,200 | $ 27,600 |
Current costs beginning work-in-process inventory | |||||
Prior department | $ 0 | $ 0 | |||
Materials | $ 0 | $ 0 | |||
Labor | $ 18,000 | $ 18,000(10) | |||
Manufacturing overhead | $ 13,500 | $ 13,500(11) | |||
Total costs | $ 414,300 | ||||
Current costs of units started and completed | |||||
Prior department | $ 576,000 | $ 576,000(12) | |||
Materials | $ 360,000 | $ 360,000(13) | |||
Labor | $ 135,000 | $ 135,000(14) | |||
Manufacturing overhead | $ 81,000 | $ 81,000(15) | |||
Total costs of units started and completed | $ 1,152,000 | ||||
Total costs | $ 1,566,300 | $ 576,000 | $ 360,000 | $ 153,000 | $ 94,500 |
Current costs work-in-process ending inventory | |||||
Prior department | $ 384,000 | $ 384,000(16) | |||
Materials | $ 216,000 | $ 216,000(17) | |||
Labor | $ 63,000 | $ 63,000(18) | |||
Manufacturing overhead | $ 18,900 | $ 18,900(19) | |||
Total ending work-in-process inventory | $ 681,900 | ||||
Total costs accounted for | $ 2,279,700 | $ 1,152,000 | $ 696,000 | $ 277,200 | $ 154,500 |
Table: (3)
Working note 1:
Compute the beginning inventory:
Working note 2:
Compute the beginning inventory:
Working note 3:
Compute the units in ending inventory:
Working note 4:
Compute the units in ending inventory:
Working note 5:
Compute the units in ending inventory:
Working note 6:
Compute the cost per equivalent unit:
Working note 7:
Compute the cost per equivalent unit:
Working note 8:
Compute the cost per equivalent unit:
Working note 9:
Compute the cost per equivalent unit:
Working note 10:
Compute the current costs added to complete beginning work-in-process inventory:
Working note 11:
Compute the current costs added to complete beginning work-in-process inventory:
Working note 12:
Compute the current costs of units started and completed:
Working note 13:
Compute the current costs of units started and completed:
Working note 14:
Compute the current costs of units started and completed:
Working note 15:
Compute the current costs of units started and completed:
Working note 16:
Compute the current costs of units started and completed:
Working note 17:
Compute the current costs of units started and completed:
Working note 18:
Compute the current costs of units started and completed:
Working note 19:
Compute the current costs of units started and completed:
b.
Determine whether the targets assigned by the management have been achieved or not. Write a short report on the same.
b.

Explanation of Solution
Computed cost per equivalent units:
Particulars | Cost per equivalent unit |
Materials | $ 1.60 |
Labor | $ 0.60 |
Manufacturing overhead | $ 0.36 |
Table: (4)
Targeted cost per equivalent units:
Particulars | Cost per equivalent unit |
Materials | $ 1.60 |
Labor | $ 0.80 |
Manufacturing overhead | $ 0.36 |
Table: (5)
Relevance of reported computed result and targeted result for materials, labor and manufacturing overhead:
The target determined by the management for materials and manufacturing overhead have been achieved. Only for labor the cost per equivalent unit has not achieved. The targeted cost per equivalent unit for labor was $0.80 but the actual cost per equivalent unit has been computed to $0.60. Thus, the target has been achieved and reduced further when computed using FIFO method for the computation.
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Chapter 8 Solutions
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