lightning industries, located in northern New England, specializes in making Flash, a low alkaline wax that is used to protect and preserve skis. the company began producing at the beginning of the production process. during january, 15300 pounds were used at a cost of 46665. direct labor of $17136 and overhead costs of $25704 were incurred uniformly throughout the month.
By january 31, 13600 pounds of flash had been completed and transferred to the finished goods inventory(one pound of input equals one pound of output) Because no spoilage occured, the leftover materials remained in the production and were 40 percent complete on average.
1. Using the FIFO costing method, prepare a process cost report for the month of january.
2. From the information in the process cost report, identify the amount that should be transferred out of the work in process inventory account, and state where those dollars should be transferred.
To prepare a process cost report using the FIFO costing method for the month of January, we need to calculate the equivalent units, cost per equivalent unit, and the total cost for each category (materials, labor, and overhead).
1. Equivalent Units Calculation:
a. Completed and Transferred Out: 13,600 pounds
b. Ending Work in Process Inventory: 40% of leftover materials (15,300 - 13,600) = 660 pounds (remaining incomplete materials)
2. Cost per Equivalent Unit Calculation:
a. Materials: $46,665 / 15,300 pounds = $3.05 per pound
b. Labor: $17,136 / 15,300 pounds = $1.12 per pound
c. Overhead: $25,704 / 15,300 pounds = $1.68 per pound
3. Total Cost Calculation:
a. Materials: $3.05 per pound x 13,600 pounds = $41,480
b. Labor: $1.12 per pound x 13,600 pounds = $15,232
c. Overhead: $1.68 per pound x 13,600 pounds = $22,848
Now we can prepare the process cost report:
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| | Units | Cost |
|------------------------------------|
| Beginning WIP | - | - |
|------------------------------------|
| Current Costs: | |
| - Materials | 13,600 | $41,480 |
| - Labor | 13,600 | $15,232 |
| - Overhead | 13,600 | $22,848 |
|------------------------------------|
| Total Cost: | | $79,560 |
|------------------------------------|
| Equivalent Units: | | |
| - Completed and Transferred Out | 13,600 | |
| - Ending WIP | 660 | |
|------------------------------------|
| Cost Per Equivalent Unit: | | |
| - Materials | | $3.05 |
| - Labor | | $1.12 |
| - Overhead | | $1.68 |
|------------------------------------|
| Costs Allocated to: | Units | Cost |
| - Completed and Transferred Out | 13,600 | $79,560 |
| - Ending WIP | 660 | $1,117.20 |
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2. From the process cost report, the amount that should be transferred out of the Work in Process (WIP) inventory account is $79,560. These dollars should be transferred to the Finished Goods inventory account as completed and transferred out units.
Note: The amount allocated to the ending WIP inventory ($1,117.20) is the cost of the remaining 660 pounds of incomplete materials, which will be carried over to the next accounting period for further processing.