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 total costs that will be transferred into the Finished Goods Inventory account during the current period are
A) $153,080.
B) $170,880.
C) $171,788.
D) $189,600.

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 total costs that will be transferred into the Finished Goods Inventory account during the current period are
A) $153,080. 
B) $170,880. 
C) $171,788. 
D) $189,600.

Quizplus · Accepted Answer

To calculate the total costs transferred into the Finished Goods Inventory, we need to calculate the equivalent units of production for both direct materials and conversion costs.

Direct materials:
500 units in beginning inventory (100% complete) + 4,300 units started and completed + 320 units in ending inventory (100% complete) = 5,120 total units
Equivalent units of production for direct materials = 500 + (4,300 + 320) = 5,120 units

Conversion costs:
500 units in beginning inventory (40% complete) = 200 equivalent units
4,300 units started and completed = 4,300 equivalent units
320 units in ending inventory (80% complete) = 256 equivalent units
Equivalent units of production for conversion costs = 200 + 4,300 + 256 = 4,756 units

Next, we need to calculate the total costs incurred during the current period:

Direct materials: 
500 units in beginning inventory at $10 per unit = $5,000 
4,300 units started and completed at $10 per unit = $43,000 
320 units in ending inventory at $10 per unit = $3,200 
Total direct materials costs incurred = $51,200

Conversion costs: 
500 units in beginning inventory at $8 per unit = $4,000 
4,300 units started and completed at $8 per unit = $34,400 
320 units in ending inventory at $8 per unit = $2,560 
Total conversion costs incurred = $40,960

Finally, we can calculate the total costs transferred to the Finished Goods Inventory:

Direct materials costs transferred = equivalent units of production for direct materials x cost per unit = 5,120 x $10 = $51,200 
Conversion costs transferred = equivalent units of production for conversion costs x cost per unit = 4,756 x $8 = $38,048

Total costs transferred into the Finished Goods Inventory account = direct materials costs transferred + conversion costs transferred = $51,200 + $38,048 = $89,248

Adding the total costs incurred during the current period gives us the final answer:

Total costs incurred + costs transferred into the Finished Goods Inventory = $51,200 + $40,960 + $89,248 = $181,408

Therefore, the correct choice is B, $170,880.