The management for Funfetti Corp. has decided to analyze their first two years of operations. Funfetti specializes in the creation of organic sprinkles that it sells to specialty bakeries. Tom, the chief financial officer (CFO), is very interested in obtaining more insight into how their costs compare year-to-year. Tom has gathered the following information about last year. Beginning Work-in-Progress (WIP) Inventory: Direct Materials (DM), $1,600; and Conversion Costs (CC), $2,340. Costs Added Last Year: DM, $11,258; and CC, $15,609. Tom also gathered the following data pertaining to the current year. Beginning WIP Inventory: DM, $1,765; and CC, $2,220. Costs Added This Year: DM, $13,467; and CC, $18,996. Using horizontal analysis, how have total equivalent costs of DM changed using the First-In, First-Out (FIFO) method?

Question

Quizplus · Accepted Answer

This question requires understanding for both the calculation of total equivalent unit costs under FIFO and horizontal analysis. First, calculate the total equivalent unit costs of the DM under FIFO for last year, and then calculate the same figure for the current year. FIFO will not include the beginning inventory costs in its calculation. Last year: $11,258, Current year: $13,467. To complete the analysis, find the difference between this year and last year and divide by the value last year. ($13,467 - $11,258)/$11,258 = $2,209/$11,258 = 0.1962 or 19.62% increase.

The Management for Funfetti Corp