Show Cost FlowsFIFO Method: Malcolm Company uses continuous processing of cereals and uses FIFO process costing to
Question:
Show Cost FlowsFIFO Method: Malcolm Company uses continuous processing of cereals and uses FIFO process costing to account for its manufacturing costs. FIFO is used because costs are quite volatile due to the price volatility of commodities. The cereals are processed through one department. Overhead is applied on the basis of direct labor costs. The application rate has not changed over the period covered by the problem. The Work in Process Inventory account showed the following balances at the start of the current period:
These costs were related to 26,000 units that were in the process at the start of the period.
During the period, 30,000 units were transferred to finished goods inventory. Of the units finished this period, 70 percent were sold. After units have been transferred to finished goods inventory, no distinction is made between the costs to complete beginning work in process inventory and the costs of goods started and completed in work in process this period.
The equivalent units this period for materials was 25,000 (using FIFO). Of these units, there were 5,000 equivalent units with respect to materials in the ending work in process inventory. Materials costs incurred during the period totaled $75,100 Conversion costs of $321,750 were incurred this period, and there were 31,250 equivalent units for conversion costs (using FIFO). The ending inventory consisted of 11,000 equivalent units of conversion costs. The actual manufacturing overhead for the period was $165,000.
Required: Prepare T-accounts to show the flow of costs in the system. Any difference between actual and applied overhead of the period should be debited or credited to Cost of Goods Sold.
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