A co. operates a process costing system. It has work-in-progress at the start of the month of 500 units (valued at $4,000) which were 30% complete in respect of all costs. A total of 2,000 units were completed and transferred to the finished goods warehouse. The cost per equivalent unit for output produced during the month was $30. The company uses the FIFO method for valuing units.
What is the total cost of the 2,000 units transferred to the finished goods warehouse?
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The answer is $59500
Since we are using FIFO, so the first units that will be completed are the opening work in progress ones. Since there are 500 units only 30 percent complete. We will convert those into the equivalent units first. So since they are 30% complete already that means we are completing the other 70% in this process and that equates to 350 equivalent units (70% * 500 units).
So the total value of the units that were completed first is
350 * 30 = 10500 plus the $4000 equals 14500
And since the total units were 2000 that were transferred and 500 units we have already worked the value of, so the other 1500 units will have a value of ( 1500 * 30) 45000
So in total the value of 2000 units transferred is 45000+14500=59500
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