Transferred-In Costs and the FIFO Method

To examine the FIFO process-costing method with transferred-in costs, we again use the five-step procedure. Exhibit 18-10 shows Steps 1 and 2. Other than accounting for transferred-in costs, computing the equivalent units is the same as under the FIFO method for the assembly department (see Exhibit 18-6).

Exhibit 18-10 

Summarize the Flow of Physical Units and Compute Output in Equivalent Units Using the FIFO Method for the Testing Department for March 2020

Spreadsheet screenshot shows the flow of physical units and compute output in equivalent units using the FIFO method for the testing department for March 2020.

Details of the flow of production are as follows:

  1. Work in process, beginning inventory (given on page 727)

    • Physical units: 240

  2. Transferred-in during current period (given on page 727)

    • Physical units: 400

  3. To account for

    • Physical units: 640

  4. Completed and transferred out during current period

    1. From beginning work in process (refer to note a)

      • Physical units: 240

      • Transferred-in costs (product of 240 and the difference of 100% and 100%): 0

      • Direct costs (product of 240 and the difference of 100% and 0%): 240

      • Conversion costs (product of 240 and the difference of 100% and 62.5%): 440

    2. Started and completed

      • Physical units: 200 (refer to note b)

      • Transferred-in costs (product of 200 and 100%): 200

      • Direct costs (product of 200 and 100%): 200

      • Conversion costs (product of 200 and 100%): 200

  5. Work in process, ending inventory (given on page 727) (refer to note c)

    • Physical units: 200

    • Transferred-in costs (product of 200 and 100%): 200

    • Direct costs (product of 200 and 0%): 0

    • Conversion costs (product of 200 and 80%): 160

  6. Accounted for

    • Physical units: 640

  7. Equivalent units of work done to date

    • Transferred-in costs: 400

    • Direct materials: 440

    • Conversion costs: 450

  8. Note a: Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 62.5%.

    • Note b: 440 physical units completed and transferred out minus 240 physical units completed and transferred out from beginning work-in-process inventory.

    • Note c: Degree of completion in this department: Transferred-in costs, 100%; direct materials, 0%; conversion costs, 80%.

Exhibit 18-11 describes Steps 3, 4, and 5. In Step 3, the $165,880 in total costs to account for under the FIFO method differ from the total costs under the weighted-average method, which are $165,400. This is because of the difference in the costs of completed units transferred in from the assembly department under the two methods—$52,480 under FIFO and $52,000 under the weighted-average method. The cost per equivalent unit for the current period in Step 4 is calculated on the basis of costs transferred in and work done in the current period only. Step 5 then accounts for the total costs of $165,880 by assigning them to the units transferred out and those in ending work-in-process inventory. Again, other than considering transferred-in costs, the calculations mirror those under the FIFO method for the assembly department (in Exhibit 18-7).

Exhibit 18-11 

Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Costs to Units Completed and to Units in Ending Work-in-Process Inventory Using the FIFO Method for the Testing Department for March 2020

Spreadsheet screenshot shows the total costs to account for, compute the cost per equivalent unit, and assign costs to the units completed and units in ending work-in-process inventory using the FIFO method for the testing department for March 2020.

Details of the spreadsheet are as follows:

  1. Step 3

    1. Work in process, beginning (given on page 727)

      • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $51,600

      • Transferred-in costs: $33,600

      • Direct materials: $0

      • Conversion cost: $18,000

    2. Costs added in current period (given on page 727)

      • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $114,280

      • Transferred-in costs: $52,480

      • Direct materials: $13,200

      • Conversion cost: $48,600

    3. Total costs to account for

      • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $165,880

      • Transferred-in costs: $86,080

      • Direct materials: $13,200

      • Conversion cost: $66,600

  2. Step 4

    1. Costs added in current period

      • Transferred-in costs: $52,480

      • Direct materials: $13,200

      • Conversion cost: $48,600

    2. Divide by equivalent units of work done in current period (Exhibit 18-10)

      • Transferred-in costs: 400

      • Direct materials: 440

      • Conversion cost: 450

    3. Cost per equivalent unit of work done in current period (quotient of costs added and equivalent units of work done):

      • Transferred-in costs: $131.20

      • Direct materials: $30.00

      • Conversion cost: 108.00

  3. Step 5: Assignment of costs

    1. Completed and transferred out (440 units)

      1. Work in process, beginning (240 units)

        • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $51,600

        • Transferred-in costs: $33,600

        • Direct materials: $0

        • Conversion cost: $18,000

      2. Costs added to beginning work in process in beginning

        • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): 16,920

        • Transferred-in costs: $33,600 (refer to note a)

        • Direct materials: product of 0 and $131.20 (refer to note a)

        • Conversion cost: product of 90 and $108 (refer to note a)

      3. Total from beginning inventory

        • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): 68,520

      4. Started and completed (200 units)

        • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $53,840

        • Transferred-in costs: product of 200 and $131.20 (refer to note b)

        • Direct materials: product of 200 and $30 (refer to note b)

        • Conversion cost: product of 200 and $108 (refer to note b)

      5. Total costs of units completed and transferred out

        • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $122,360

    2. Work in process ending (200 units)

      • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $43,520

      • Transferred-in costs: product of 200 and $131.20 (refer to note c)

      • Direct materials: product of 0 and $30 (refer to note c)

      • Conversion cost: product of 160 and $108 (refer to note c)

    3. Total costs accounted for

      • Total production costs (sum of transferred-in costs, direct materials, and conversion costs): $165,880

      • Transferred-in costs: $86,080

      • Direct materials: $13,200

      • Conversion cost: $66,600

        (4) Note a: Equivalent units used to complete beginning work in process from Exhibit 18-10, Step 2.

      • Note b: Equivalent units started and completed from Exhibit 18-10, Step 2.

      • Note c: Equivalent units in ending work in process from Exhibit 18-10, Step 2.

Remember that in a series of interdepartmental transfers, each department is regarded as separate and distinct for accounting purposes. The journal entry for the transfer from testing to Finished Goods (see Exhibit 18-11) is shown below:

A table shows the journal entry for the transfer from testing to finished goods

The table depicts the journal entry for the transfer from testing to finished goods. The details of the table are as follows:

1. Finished goods control: 122,360

2. Work in process, testing: 122,360

3. To record the cost of goods completed and transferred from testing to Finished Goods.

The entries in the Work in Process—Testing account (see Exhibit 18-11) are as follows:

A table shows the T-account for work in process: testing

The table depicts T-account for work in process: testing. The details of the table are as follows:

1. Beginning inventory, March 1: 51,600

2. Ending inventory, March 31: 43,520