Question

FIFO Method, Physical Flow, Equivalent Units, Unit Costs, Cost Assignment

Swasey Fabrication, Inc., manufactures frames for bicycles. Each frame passes through three processes: Cutting, Welding, and Painting. In September, the Cutting Department of the Tulsa, Oklahoma, plant reported the following data:

1. In Cutting, all direct materials are added at the beginning of the process.
2. Beginning work in process consisted of 41,000 units, 20 percent complete with respect to direct labor and overhead. Costs in beginning inventory included direct materials, $1,215,000; direct labor, $223,000; and applied overhead, $150,000.
3. Costs added to production during the month were direct materials, $2,575,000; direct labor, $3,471,050. Overhead was assigned using the following information:

   Activity		Rate		Actual Driver Usage
   Inspection		$150 per inspection hour		4,000 inspection hours
   Maintenance		$750 per maintenance hour		1,600 maintenance hours
   Receiving		$300 per receiving order		2,000 receiving orders

4. At the end of the month, 121,000 units were transferred out to Welding, leaving 14,000 units in ending work in process, or 25 percent complete.

Assume that the FIFO method is used.

Required:

1. Prepare a physical flow schedule.

Swasey Fabrication, Inc.
Physical Flow Schedule
Units to account for:
Total units to account for
Units accounted for:
Total units accounted for

2. Calculate equivalent units of production for direct materials and conversion costs.

	Equivalent Units
Direct Materials
Conversion Costs

3. Compute unit cost. Round unit costs & final answer to three decimal places.
$ per unit

4. Calculate the cost of goods transferred to Painting at the end of the month. In your calculations, round unit costs to three decimal places. Round your final answer to the nearest dollar.
$

Calculate the cost of ending inventory. In your calculations, round unit costs to three decimal places. Round your final answer to the nearest dollar.
$

Answer 1

1) Swasey Fabrication, Inc. Physical Flow Schedule Units to account for: Beginning work in process Started in current period/month Total units to account for Units accounted for: Copleted & transferred out Ending work in process Total units accounted for 41,000 94,000 --> Balancing figure --> 135000 - 41000 = 94000] 135,000 121,000 14,000 135,000 2) Under FIFO method, equivalent units would consist efforts required to complete the beginning inventory, efforts put for completed and transferred out goods and ending inventory. As the materials are introduced at the beginning itself, beginning inventory is 100% complete in terms of materials, 0% efforts would be required in current process or period whereas conversion costs would require the uncompleted portion of costs in current process or period. That is, it was complete 20% already and so 80% efforts would be required in current period. Units in beginning inventory Add: Started in current period/month Less: Units in ending inventory Units completed and transferred out 41,000 94,000 -14,000 121,000 --> Of which 41000 units shall be from beg. inventory; Bal. 80000 units from current.

Particulars Beginning work in process Started, Completed and transferred Transferred to next process Ending work in process Equivalent Units of Production (EUP) EUP- EUP- Materials Conversion 0 32,800 [41000 units x 0%; 41000 units x 80%] 80,000 80,000 [80000 units x 100%; 80000 units x 100%] 80,000 112,800 14,000 3,500 [14000 units x 100%; 14000 units x 25%] 94,000 116,300 NOTE: As all the materials are trfd. in at the beginning of the process, ending WIP inventory shall consist of 100% of trfd. in for EUP calculation. 3) Cost per equivalent units of production Cost of beginning work in process Costs added during current period/process Total Materials Costs & Conversion Costs Equivalent units of Production (EUP) Cost per Equivalent units of Production Materials Conversion [Under FIFO method, it shall not be considered here] $2,575,000 $5,871,050 [Conversion = $3,471,050 + (4,000x$150) + (1,600x$750) + (2,000x$300) = $5871050] $2,575,000 $5,871,050 94,000 116,300 [As computed EUP schedule presented above] $27.394 $50.482 ($2575000 / 94000 units = $27.394; $5871050 / 116300 units = $50.482]

4) Cost per Cost of goods completed & transferred EUP Totals EUP Materials - Beginning cost Conversion - Beginning Cost Cost of goods completed & trfd from beginning $1,215,000 $373,000 $223,000 + $150,000] $1,588,000 80,000 112,800 $27.394 $50.482 Materials - Current Cost Conversion - Current Cost Cost of goods completed & trfd from current Total Cost of goods completed & transferred $2,191,520 [80000 units x $27.394] $5,694,370 [112800 units x $50.482] $7,885,890 $9,473,890 ($1588000+ $7885890] Cost of ending work-in-process EUP Totals Cost per EUP $27.394 $50.482 Materials Conversion Total cost of ending work-in-process 14,000 3,500 $383,516 [14000 units x $27.394] $176,687 [3500 units x $50.482] $560,203