PCJ Limited operates a process costing system. At the start of July, work in progress (WIP) of 500 units was 60% complete with respect to materials and had a cost of £1,150. 5,000 units of product were transferred to finished goods during July. At the end of July, WIP consisted of 600 units of product which were 50% complete with respect to materials. Materials costs incurred by the process during July were £20,050. PCJ Limited uses the first in first out (FIFO) method when valuing closing work in progress and finished goods. How much materials cost is included in the production cost of goods transferred to finished goods during July?
A) £18,847
B) £19,928
C) £19,997
D) £20,000

Question

Quizplus · Accepted Answer

Under the FIFO method, the cost of materials for units transferred to finished goods includes the cost of materials for the beginning WIP and the cost of materials added during the period. The cost of materials for the beginning WIP is £1,150. The cost of materials added during July is £20,050. The ending WIP (600 units, 50% complete) accounts for 300 equivalent units of materials. Therefore, the cost of materials for the units transferred to finished goods is £1,150 + (£20,050 - (300/5000 * £20,050)) = £19,997.

PCJ Limited Operates a Process Costing System