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

Exercise 33

Prepare a Production Cost Report: FIFO Method

Assume that El Paso Corporation provides you with the following information for one of its department’s operations for September (no new material is added in Department B):

WIP inventory—Department B
Beginning inventory (7,500 units, 20% complete with respect to Department B costs)
Transferred-in costs (from Department A)	$ 29,000
Department B conversion costs	7,675
Current work (17,500 units started)
Prior department costs	70,000
Department B costs	149,075
The ending inventory has 2,500 units, which are 50 percent complete with respect to Department B costs and 100 percent complete for prior department costs.

Required

Prepare a production cost report using FIFO.

Step 1 of 3

Inventory cost flow system

The cost of identical inventory lying in the stock may be different. Cost of inventory changes due to fluctuations in the purchase prices of inventory in the market. Hence inventory stock may have similar inventory with different prices and when the inventory is issued its cost is also sent to cost of goods sold.

There are different methods being used to transfer inventory cost to the cost of goods sold like FIFO (first in first out), LIFO (last in first out), weighted average method etc.

Under FIFO method inventory purchased first is issued first. Under LIFO method inventory purchased last is issued first.

Under weighted average method inventory is issued at weighted average unit cost. Weighted average cost is calculated by dividing the total inventory cost with total inventory counts.