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Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
Edition 2ISBN: 978-0077274993 Exercise 31
Show Cost Flows: FIFO Method
Vermont Company uses continuous processing to produce stuffed bears and FIFO process costing to account for its production costs. It uses FIFO because costs are quite unstable due to the volatile price of fine materials it uses in production. The bears are processed through one department. Overhead is applied on the basis of direct labor costs, and the application rate has not changed over the period covered by the problem. The Work-in-Process Inventory account showed the following balances at the start of the current period:
These costs were related to 52,000 units that were in process at the start of the period.
During the period, 60,000 units were transferred to finished goods inventory. Of the units finished during this period, 80 percent were sold. After units have been transferred to finished goods inventory, no distinction is made between the costs to complete beginning work-in-process inventory and the costs of goods started and completed in work in process this period.
The equivalent units for materials this period were 50,000 (using FIFO). Of these, 10,000 were equivalent units with respect to materials in the ending work-in-process inventory. Materials costs incurred during the period totaled $300,400.
Conversion costs of $1,287,000 were charged this period for 62,500 equivalent units (using FIFO). The ending inventory consisted of 22,000 equivalent units of conversion costs. The actual manufacturing overhead for the period was $660,000.
Required
Prepare T-accounts to show the flow of costs in the system. Any difference between actual and applied overhead for the period should be debited or credited to Cost of Goods Sold.
Vermont Company uses continuous processing to produce stuffed bears and FIFO process costing to account for its production costs. It uses FIFO because costs are quite unstable due to the volatile price of fine materials it uses in production. The bears are processed through one department. Overhead is applied on the basis of direct labor costs, and the application rate has not changed over the period covered by the problem. The Work-in-Process Inventory account showed the following balances at the start of the current period:
These costs were related to 52,000 units that were in process at the start of the period.
During the period, 60,000 units were transferred to finished goods inventory. Of the units finished during this period, 80 percent were sold. After units have been transferred to finished goods inventory, no distinction is made between the costs to complete beginning work-in-process inventory and the costs of goods started and completed in work in process this period.
The equivalent units for materials this period were 50,000 (using FIFO). Of these, 10,000 were equivalent units with respect to materials in the ending work-in-process inventory. Materials costs incurred during the period totaled $300,400.
Conversion costs of $1,287,000 were charged this period for 62,500 equivalent units (using FIFO). The ending inventory consisted of 22,000 equivalent units of conversion costs. The actual manufacturing overhead for the period was $660,000.
Required
Prepare T-accounts to show the flow of costs in the system. Any difference between actual and applied overhead for the period should be debited or credited to Cost of Goods Sold.
Explanation
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Fundamentals of Cost Accounting 2nd Edition by William Lanen, Carolyn Wells, Michael Maher
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