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Homework answers / question archive / Hassan Limited uses the FIFO method in its process costing system
Hassan Limited uses the FIFO method in its process costing system. The data given relates to the most recent month of operations for one of the processing departments:
Opening units
400
Units started into production
3,000
Closing units
300
Material
Conversion
Percentage completion of opening inventory
80%
40%
Percentage completion of closing inventory
70%
60%
The cost of beginning inventory was Rs.10,040 of which Rs.7,120 was for materials and the remainder was for conversion cost. The costs added during the month amounted to Rs.132,730 of which Rs.76,048 was for materials and the remainder was for conversion cost.
Required:
1. Compute the equivalent units of material and of conversion in the ending inventory. (2 Mark)
2. Compute the equivalent units of material and of conversion that were required to complete the beginning inventory. (2 Mark)
3. Determine the number of units started and completed during the month. (1 Mark)
4. Compute the cost per equivalent unit for materials and for conversion and the total cost per equivalent unit. (1 Mark)
5. Determine the cost of units transferred out. (2 Marks)
6. Determine the cost of ending inventory (2 Marks)
Given information:
| Inventory | Units | % Completion material | % Completion Conversion | Cost | Materials | Conversion |
| Opening | 400 | 80% | 40% | 10040 | 7120 | 2920 |
| Units started into production | 3000 | |||||
| Closing | 300 | 70% | 60% | |||
| Costs during month | ||||||
| Materials | 132720 | |||||
| Conversion | 76048 |
1.
| Equivalent unit in Closing inventory | ||
| For Materials | 210 | (300 x 70%) |
| For Conversion | 180 | (300 x 60%) |
2.
| Equivalent units required to complete beginning inventory | ||
| For Materials | 80 | [400 x (100-80)%] |
| For Conversion | 240 | [400 x (100-40)%] |
3.
| Number of Units started and completed during the month | |
| Units started into production | 3000 |
| Less: Closing inventory | -300 |
| Number of Units started and completed during the month | 2700 |
4.
| Cost per equivalent unit for materials | |
| Equivalent units during month for materials | |
| Equivalent units completed for beginning inventory | 80 |
| Add: Units produced and completed durin month | 2700 |
| Add: Units produced and completed during month | 210 |
| Equivalent units during month for materials (a) | 2990 |
| Cost of Materials (b) | 132720 |
| Cost per equivalent unit for materials (b/a) | 44.39 |
| Cost per equivalent unit for conversion | |
| Equivalent units during month for conversion | |
| Equivalent units completed for beginning inventory | 240 |
| Add: Units produced and completed during month | 2700 |
| Add: Equivalent units in Closing inventory | 180 |
| Equivalent units during month for conversion (a) | 3120 |
| Cost of Conversion (b) | 76048 |
| Cost per equivalent unit for conversion (b/a) | 24.37 |
5.
| Cost of units transferred out | |
| Opening Inventory | |
| Cost incurred in previous month for: | |
| Materials | 7120 |
| Conversion | 2920 |
| Cost incurred during present month | |
| Materials (80 x 44.39) | 3551 |
| Conversion (240 x 24.37) | 5850 |
| Units produced and completed during this month | |
| Materials (2700 x 44.39) | 119847 |
| Conversion (2700 x 24.37) | 65811 |
| Total Cost for units transferred out | 205099 |
6.
| Cost of ending inventory | |
| Materials (210 x 44.39) | 9321 |
| Conversion (180 x 24.37) | 4387 |
| Total Cost of closing inventory | 13709 |
