Managerial Accounting – FIFO Accounting

Question: Describe about the Managerial Accounting FIFO Accounting. Answer: a) i) Cost per equivalent unit for each product cost category Equivalent units of production = units transferred out + equivalent units in ending work in process inventory Equivalent units in beginning work in process inventory (Hansen, et al., 2007) To complete Beginning work in process =20 /100 x 12,000 = 2,400 litres Units started and completed = 148,500 litres Ending work in progress = 40/100 x 15,000 litres x 100/60 = 10,000 litres Equivalent units of production = 160,900 litres Cost per equivalent unit = production cost/Equivalent units = $ 942,275/160,900 litres = $5.86 per litre ii) Cost of finished goods transferred out Good units completed and transferred out + Goods completed in beginning = 148,500 litres + 9,600 litres x $ 5.86/litre = $ 926, 466 iii) Abnormal spoilage = Total spoilage - Normal spoilage (5%) Abnormal spoilage is the amount of waste generated by a production process, which exceeds the normal level that was expected. It is calculated from the total spoilage and the normal spoilage as an incurred expense. Total spoilage = (Units in beginning work-in process inventory + Units started) (Good units completed and transferred out + Units in ending work-in progress) = (12000 litres +160500 litres) (148,500 litres + 15,000 litres) = 9,000 litres Normal spoilage = 5/100 x 148,500 (Goods completed and transferred out) = 7,425 litres Abnormal spoilage = 9,000 litres 7,425 litres = 1,575 litres x $ 5.86 = $ 9, 229.5 iv) Ending work process = beginning work in progress + manufacturing costs costs of goods manufactured = ($80,000 + $862, 275) - $ 861,645 = $80,630 b) Pass all necessary journal entries Flow of production Physical Units Direct Materials Conversion Costs Work in process 1 Feb 12,000 litres Started during Feb 160,500 litres 321,000 541,275 Goods finished and transferred 158,100 litres Started and completed 148,500 litres Normal spoilage 5/100 x 148,500 = 7, 425 litres Abnormal spoilage 9,000 litres 7,425 litres = 1,575 litres Work in process ending 15,000 litres Work done in current period only 160,900 litres c) An equivalent unit of production is a measure of the quantity of work done by a manufacturer who is yet to complete work on the units on hand at the end of an accounting period (Drury, 2013). All units, the completed and partially completed units, are expressed as fully completed units. The unit gives a theoretical view of the amount of overhead manufacturing costs, cost of materials, and direct labor that the company incurred in the accounting period for all uncompleted items (Kinney Raiborn, 2012). References Drury, C. M., 2013. Management and cost accounting. Oxford, UK: Springer. Hansen, D., Mowen, M. Guan, L., 2007. Cost management: Accounting and control. NewY ork, NY: Cengage Learning. Kinney, M. R. Raiborn, C. A., 2012. Cost Accounting: Foundations and Evolutions. New York, NY: Cengage Learning.