Nader, Inc., has the following information available: At the beginning of the period, there were 500 units in process that were 40 percent complete as to conversion costs and 100 percent complete as to direct materials costs. During the current period, 4,300 units were started and completed. Ending inventory contained 320 units that were 80 percent complete as to conversion costs and 100 percent complete as to direct materials costs. (Assume that the company uses the FIFO costing method.)
The cost of completing a unit during the current period was
A) $39.50.
B) $35.60.
C) $35.21.
D) $35.79.

Question

Nader, Inc., has the following information available:  At the beginning of the period, there were 500 units in process that were 40 percent complete as to conversion costs and 100 percent complete as to direct materials costs. During the current period, 4,300 units were started and completed. Ending inventory contained 320 units that were 80 percent complete as to conversion costs and 100 percent complete as to direct materials costs. (Assume that the company uses the FIFO costing method.)
The cost of completing a unit during the current period was
A) $39.50. 
B) $35.60. 
C) $35.21. 
D) $35.79.

Quizplus · Accepted Answer

Using the FIFO method, we have to calculate the cost of the beginning inventory, cost of units started and completed during the period, and the cost of the ending inventory.

Cost of beginning inventory:
500 units x 40% complete x (Direct Materials Cost + Conversion Costs)
= 500 x 0.4 x (DM + CC)
= 200DM + 200CC

Cost of units started and completed during the period:
4,300 units x (Direct Materials Cost + Conversion Costs)
= 4,300 x (DM + CC)

Cost of ending inventory:
320 units x 80% complete x (Direct Materials Cost + Conversion Costs)
= 320 x 0.8 x (DM + CC)
= 256DM + 256CC

Total cost:
200DM + 200CC + 4,300DM + 4,300CC - 256DM - 256CC
= 4,244DM + 4,244CC

To find the cost of completing a unit, we divide the total cost by the total number of units completed during the period:
Cost per unit = Total cost / Total number of units completed
= (4,244DM + 4,244CC) / 4,300
= $35.60

Therefore, the cost of completing a unit during the current period was $35.60. Option B is correct.