Kovacik Products Uses a FIFO Process Costing System to Accumulate

question 98

Essay

Kovacik Products uses a FIFO process costing system to accumulate product costs. The Fabricating Process centre is the first centre where production of bronze lamps begins. Direct materials are used in the beginning of the process. November's information follows:
Beginning work in process (75% complete)16,000 units
Started in November 117,500
Ending work in process (40% complete)17,500
Costs for November were:
Beginning inventory $24,000 Direct materials
6,000 Direct labour
12,000 Overhead
Current costs added: $204,800 Direct materials
72,150 Direct labour
127,650 Allocated overhead
a)Calculate the equivalent units and cost per unit of direct material and conversion using the FIFO method.
b)The manager estimating completion believes that she may have underestimated the percentage of completion for ending inventory. Explain how this will affect the cost per equivalent unit this period and next period.
c)Next period volumes of production are expected to increase and because of volume discounts, direct materials costs are expected to decrease. At the end of next period, would weighted average or FIFO show a lower cost per unit? Explain.

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