Bag Company had a beginning inventory of 4,000 bags with costs of $18,000 on January 1. The direct materials were complete and all overhead had been assigned; however, only 40 percent of direct manufacturing labour was added in the prior period. Another 20,000 units were started and completed during the current period. Unit costs are as follows: materials, $8.00; labour, $9.00; and overhead, $5.00. What is the total cost of goods transferred out using the FIFO method?

Question

Quizplus · Accepted Answer

Using the FIFO method, we first assume that the 4,000 bags from the beginning inventory were completed in the prior period and their costs were transferred out. Therefore, we only need to account for the 20,000 units completed in the current period.
Direct materials cost per unit = $8.00
Direct labour cost per unit = $9.00 x 60% = $5.40
Overhead cost per unit = $5.00
Total cost per unit = $8.00 + $5.40 + $5.00 = $18.40
Total cost of 20,000 units = $18.40 x 20,000 = $368,000
Total cost transferred out = Cost of beginning inventory + Cost of current period production = $18,000 + $368,000 = $386,000
Therefore, the best choice is C, $479,600, which represents the total cost of goods transferred out using the FIFO method.

Bag Company Had a Beginning Inventory of 4,000 Bags with Costs