Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 32

Assign Costs to Goods Transferred Out and Ending Inventory: FIFO Method

Refer to the data in Exercise 8-29. Compute the cost of goods transferred out and the cost of ending inventory using the FIFO method. Is the ending inventory higher or lower under the weighted- average method compared to FIFO? Why?

Step 1 of 5

All units cannot be wholly completed at the end of a specific period. Some units may be partially complete. Expenses (Material cost and conversion costs) might have been incurred on such units to the extent of their completion. Hence, in order to determine the actual production in a process, the concept of equivalent units is used. The partially completed units are multiplied with their percentage of completion and the resultant figure is considered as whole units produced.

Table showing calculation of physical units

Particulars	Number of units
Balance at the start of the period (a)	48,000
Add: Units input (b) = (a) + (b) – (d)	84,000
Less: Units transferred out (c)	102,000
Balance at the end of period (d)	30,000

Table showing calculation of equivalent units using FIFO method

Particulars	Units (a)	Materials	Conversion Costs
		% of completion in the period (b)	Equivalent Units (c)=(a) × (b)	% of completion in the period (d)	Equivalent Units (e)=(a) × (d)
Work in process at the beginning	48,000	100 – 30 = 70%	33,600	100 – 30 = 70%	33,600
Work completed during the period	102000 – 48000 = 54,000	100%	54,000	100%	54,000
Work in process at the end	30,000	80%	24,000	40%	12,000
Total	132,000		111,600		99,600