During September, the Filtering Department of Olive Company had beginning transferred in units of 500 units with costs of $125,000. During the month, 800 units were transferred in from the Milling Department with transferred in costs of $200,000. It had 400 units in ending Work-in-Process Inventory. What is the total cost of production for the units transferred to the Finishing Department in September under the first-in, first-out (FIFO)method?
A)$258,336
B)$125,000
C)$75,000
D)$150,000

Question

Quizplus · Accepted Answer

Using the FIFO method, we assume that the first 500 units transferred in from the beginning inventory were the first to be completed and transferred out. Then, the next 500 units are assumed to be the first 500 units transferred in from the Milling Department and so on. Therefore, the cost of the 500 units transferred out would be the cost of the beginning inventory (given as $125,000), and the cost of the next 300 units transferred out would be $200,000/800 units x 300 units = $75,000. The ending Work-in-Process Inventory of 400 units is assumed to consist of the last 400 units transferred in from the Milling Department, and the cost would be $200,000/800 units x 400 units = $100,000. Therefore, the total cost of production for the units transferred to the Finishing Department in September would be $125,000 + $75,000 + $100,000 = $300,000. However, since only 800 units were completed and transferred out, the cost per unit would be $300,000/800 units = $375. Therefore, the cost of the 800 units transferred out would be 800 units x $375 = $300,000. However, since we are only looking for the cost of the units transferred out under the FIFO method, we only need to consider the cost of the first 800 units transferred in from the beginning inventory and the Milling Department, which is $125,000 + $75,000 = $200,000. Therefore, the answer is A) $258,336

During September, the Filtering Department of Olive Company Had Beginning