A company uses the FIFO method for inventory costing. During a period, a production department had 20,000 units in beginning goods in process inventory which were 40% complete; the department completed and transferred 165,000 units. At the end of the period, 22,000 units were in the ending goods in process inventory and are 75% complete. All of these are with respect to labor. The production department had labor costs in the beginning goods is process inventory of $99,000 and total labor costs added during the period are $726,825. Compute the equivalent cost per unit for labor.
A) $4.40.
B) $4.76.
C) $4.19.
D) $4.55.
E) $4.61.

Question

Quizplus · Accepted Answer

First, we need to calculate the equivalent units of production for labor:

Units in beginning WIP inventory = 20,000 x 40% = 8,000
Units completed and transferred = 165,000
Units in ending WIP inventory = 22,000 x 75% = 16,500

Total equivalent units of production for labor = 8,000 + 165,000 + 16,500 = 189,500

Next, we calculate the total cost of labor for the period:

Labor costs in beginning WIP inventory = $99,000
Total labor costs added during the period = $726,825

Total labor costs for the period = $99,000 + $726,825 = $825,825

Finally, we divide the total labor costs by the equivalent units of production to get the equivalent cost per unit for labor:

Equivalent cost per unit for labor = $825,825 / 189,500 = $4.19

Therefore, the answer is choice C, $4.19.

A Company Uses the FIFO Method for Inventory Costing