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Hi sir, I wonder if you can assist with the following:
GRE operates a process costing system. Las month, It had WIP 300 Units 60% complete and valued at $1710. 2000 units were completed and transferred to warehouse. The cost per equivalent units is $10. It uses FIFO method of cost allocation. What was the value of the 2000 units transferred to the finished goods warehouse las month?
The answer is $19,910.
Here are my thoughts:
– As this is FIFO we need to calculate the number of units started and finished in the same period, however there is no information about Opening WIP so should we assume this is 1700 units started and finished?
-If 300 units are 60 % completed, this is the equivalent to 180 units 100% completed. However, If the value of these units is $1710, and the equivalent unit is $10, then I understand that those 300 units are just the equivalent to 171 units 100% completed?
I’m struggling to rich a 19,910 value for the 2000 units transferred to Process 2.
Your help is very appreciated,
Thank you
MThe WIP of 300 units must have been the opening WIP (otherwise they would not have been valued at $1,710 because that is not based on $10 per effective unit).
Given that 2,000 units were transferred, 300 of them were the opening WIP that were finished and the other 1,700 must have beeb completed from start to finish in the month.
The value of the finished WIP is the $1,710 already spent in the previous month plus cost of finishing of 40% x 300 x $10 = $1,200. So a total of $2,910.
The value of the 1,700 completed in full this month is 1,700 x $10 = $17,000
So the total value of the units transferred = 2,910 + 17,000 = $19,910.
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