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FIFO Cost of Production

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA MA – FIA FMA › FIFO Cost of Production

  • This topic has 3 replies, 2 voices, and was last updated 10 months ago by John Moffat.
Viewing 4 posts - 1 through 4 (of 4 total)
  • Author
    Posts
  • March 31, 2022 at 12:22 pm #652412
    dik217
    Participant
    • Topics: 7
    • Replies: 4
    • ☆

    Hello Sir,

    I hope you are doing well.
    I will be sitting for MA exam this month. I have seen all your lectures and have gone through notes as well, Yet i am facing an issue with FIFO Cost of production valuation.

    Can you please tell me process account for the following question.
    My values are :-
    OWIP = 50 x $20 = $1000
    Finished Work = 1800 x $30 = $54000
    CWIP = 100 x $10 = 1000 & 50 x $20 = $1000.

    AXL Ltd operates a process costing system. Details of Process 1 are
    as follows.
    All materials used are added at the beginning of the process. Labour
    costs and production overhead costs are incurred evenly as the product
    goes through the process. Production overheads are absorbed at a rate
    of 100% of labour costs.
    The following details are relevant to production in the period:
    Units Materials Labour and production
    overheads
    Opening inventory 200 100% complete 75% complete
    Closing inventory 100 100% complete 50% complete

    Opening inventory
    Costs associated with these opening units are $1,800 for materials. In
    addition $4,000 had been accumulated for labour and overhead costs.
    Period costs
    Costs incurred during the period were:
    Materials $19,000
    Labour costs $19,000
    During the period, 2,000 units were passed to Process 2. There were
    no losses.
    The company uses a FIFO method for valuing process costs.
    Required:
    Calculate the total value of the units transferred to Process 2.

    Looking forward for your response.
    Thank You

    March 31, 2022 at 3:23 pm #652431
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51538
    • ☆☆☆☆☆

    Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers – they have answers and explanations!

    The value of the opening WIP is given in the question and is 1,800 + 4,000 = 5,800.

    During the period, they produced 2,000 – 200 = 1,800 units from start to finish.

    Therefore the effective units produced during the period were:
    Materials: 1,800 + 100 = 1,900
    Labour + o/heads: (200 x 25%) + 1,800 + (100 x 50%) = 1,900

    Therefore the cost per unit of work done this period is:
    Materials: $19,000 / 1,900 = $10
    Lab + o/h: $38,000 / 1,900 = $20

    Therefore the value of units transferred to process 2 is:

    5,800 + (200 x 25% x $20) + (1,800 x $30) = $60,800.

    (The value of the closing WIP is not asked for, but is (100 x $10) + (100 x 50% x $20) = $2,000.)

    March 31, 2022 at 6:10 pm #652443
    dik217
    Participant
    • Topics: 7
    • Replies: 4
    • ☆

    I just wanted to clear my doubt.
    This helped, Thank you.

    April 1, 2022 at 7:31 am #652492
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 51538
    • ☆☆☆☆☆

    You are welcome.

  • Author
    Posts
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