Zuniga, Inc. uses a process costing system. During May, 1,200 units were transferred into Department 2 at a cost of $38,040. Direct materials are added at the beginning of the process. Additionally: On May 1: Beginning inventories = 250 units, 40% complete
Direct materials costs = $1,250
Conversion costs = $1,356
Transferred-in costs = $2,560
During May: Direct materials costs incurred = $6,000
Conversion costs incurred = $17,013
On May 31: Ending Inventories = 350 units, 20% complete
Using the FIFO method, the cost of the beginning work in process units transferred out was:

Question

Quizplus · Accepted Answer

To calculate the cost of the beginning work in process units transferred out, we need to determine the equivalent units of production for direct materials and conversion costs separately.

For direct materials: 
- Beginning inventory = 250 units x 40% complete = 100 equivalent units 
- Units transferred in = 1,200 units 
- Units started and completed in May = 650 units (1,200 + 250 - 350) 
- Ending inventory = 350 units x 20% complete = 70 equivalent units 
- Total equivalent units = 1,020 equivalent units 
- Cost per equivalent unit = ($1,250 + $6,000) ÷ 1,020 = $6.37 
- Cost of direct materials transferred out = 650 units x $6.37 = $4,140.50

For conversion costs: 
- Beginning inventory = 250 units x 40% complete = 100 equivalent units 
- Units started and completed in May = 650 units (1,200 + 250 - 350) 
- Ending inventory = 350 units x 20% complete = 70 equivalent units 
- Total equivalent units = 720 equivalent units 
- Cost per equivalent unit = ($1,356 + $17,013) ÷ 720 = $26.23 
- Cost of conversion costs transferred out = 650 units x $26.23 = $17,013.50

Using the FIFO method, we assume that the beginning work in process units transferred out are the units that were started in the previous period (May 1) and then completed in May. Therefore, the cost of the beginning work in process units transferred out is equal to the cost of the 250 units that were started on May 1:

- Cost of direct materials = 250 units x 40% complete x $1,250 = $12,500 
- Cost of conversion costs = 250 units x 40% complete x $1,356 = $136,560 
- Total cost of beginning work in process units = $12,500 + $136,560 = $149,060 
- Cost per unit = $149,060 ÷ 250 units = $596.24 
- Cost of beginning work in process units transferred out = 250 units x $596.24 = $149,060

Therefore, the best choice is C) $7,551, because this is the cost of direct materials transferred out using the FIFO method.