Penny, Inc. employs a process costing system. Direct materials are added at the beginning of the process. Here is information about July’s activities: On July 1: Beginning inventories 850 units, 60% complete

Direct materials cost $5,000

Conversion costs $4,000

During July:

Number of units started 15,000

Direct materials added $155,000

Conversion costs added $83,520

On July 31:

Ending inventories 1,600 units, 40% complete

Using the FIFO method and rounding cost per unit to four decimal places, the cost of goods completed and transferred out during July was:

$227,270

Explanation:

The computation of the cost of goods completed and transferred out is shown below

Particulars        Direct materials     Conversion costs      

Beginning inventories    0                      340

                                                        (850 × 40%)    

Units started

and completed         13400                       13400

          (15,000 - 1,600)

Ending inventories       1600                   640  

                                                       (1,600 × 40%)    

Equivalent units          15000             14380      

Current costs              $155000         $83520      

Cost per Equivalent unit $10.3333    $5.8081      

Cost of goods completed and transferred out is

= ($5000 + $4000) + (340 × 5.8081) + 13400 × (10.3333 + 5.8081)

= $227,270

a

explanation: