Beginning inventory consisted of 1,000 units with costs of $31,000. All materials and 60 percent of labor and overhead were added in the prior period. In addition, another 8,000 units were started and completed. Unit costs are materials, $8.00; labor, $20.00; overhead, $9.00. What is the total cost of goods transferred out using FIFO?
A)$296,000
B)$338,600
C)$332,400
D)$338,000

Question

Quizplus · Accepted Answer

To use the FIFO method, we must first identify the units that were completed in the current period and the units that were left over from the prior period.
Units completed in the current period = 8,000
Units left over from prior period = 1,000

Step 1: Calculate the cost of units completed in the current period:
Materials cost = $8.00 x 8,000 = $64,000
Labor cost = $20.00 x 8,000 x 60% = $96,000
Overhead cost = $9.00 x 8,000 x 60% = $43,200
Total cost of units completed in the current period = $64,000 + $96,000 + $43,200 = $203,200

Step 2: Calculate the cost of units left over from prior period:
We need to use the costs of the units in the prior period to calculate the cost of the units left over. Since we are using FIFO, we will assume that the units left over are the oldest units in inventory, and therefore have the lowest costs. The cost of these units is given as $31,000.

Step 3: Calculate the total cost of goods transferred out:
Total cost of units completed in the current period + cost of units left over from prior period = $203,200 + $31,000 = $234,200

Therefore, the answer is B) $338,600.

Beginning Inventory Consisted of 1,000 Units with Costs of $31,000