Malaviya Corporation Uses The FIFO Method In Its Process Co

Malaviya Corporation Uses The Fifo Method In Its Process Costing Syste

Malaviya Corporation employs the FIFO (First-In, First-Out) method within its process-costing system to determine the cost per equivalent unit for conversion costs for the month of September. The company maintains detailed records of beginning work-in-process inventory, units transferred in, and ending work-in-process inventory, along with associated costs. This problem requires calculating the cost per equivalent unit for conversion costs entirely based on the provided data, including costs of beginning inventory, costs incurred during September, and the units' degree of completion.

Additionally, the problem poses a separate question about identifying which persons would occupy line positions in a department store, providing four options: sales manager, manager of the furniture department, manager of advertising, and manager of personnel. The answer involves understanding typical organizational roles in retail environments.

Further, another scenario involves Abis Corporation, which uses the weighted-average method for process-costing. The problem provides data on beginning inventory units and costs, units started and transferred during the month, costs incurred, and ending inventory completion percentages. The task is to compute the total costs transferred from the first to the second processing department during the month, considering all provided data, including costs and percentage completion levels.

Paper For Above instruction

In this paper, we examine the process costing methods and their application in real-world manufacturing and service settings, with particular focus on the FIFO and weighted-average approaches. These methods are crucial in accurately assigning costs to products, especially in industries with continuous production processes such as manufacturing, processing, or large retail operations.

Costing Methods in Process Manufacturing

Process costing is an accounting methodology used primarily in industries where production is continuous and units are indistinguishable from each other, such as chemical manufacturing, textiles, and food processing (Drury, 2018). The primary challenge in process costing involves accurately allocating costs to each unit of output, which depends on the accounting system adopted—either FIFO or weighted-average.

The FIFO method emphasizes assigning costs based on the actual flow of costs and units, distinguishing between beginning inventory and current period costs. This approach provides a more precise depiction of the current production costs, especially in fluctuating cost environments. Conversely, the weighted-average method calculates an average cost per unit by combining beginning inventory costs with costs incurred during the period, simplifying accounting but sometimes distorting cost data, particularly when there are significant changes in costs during the period (Hilton & Platt, 2019).

Application of FIFO to Malaviya Corporation

In the case of Malaviya Corporation, the calculation of the cost per equivalent unit for September's conversion costs involves considering the costs associated with beginning inventory, costs incurred during the month, and the degree of completion of units in ending inventory. The data provided indicates the beginning work-in-process inventory was 17,000 units, 40% complete with respect to conversion costs, and the ending inventory was 18,000 units, 30% complete.

The beginning inventory's conversion costs were $63,104, and additional conversion costs incurred during the month totaled $654,240. To determine the cost per equivalent unit using FIFO, we focus only on the costs incurred during the current period, plus the costs related to the units that were incomplete at the start of the period, adjusted for their degree of completion. Since FIFO excludes the beginning inventory costs and costs associated with the completed portion of prior inventory, the calculation involves summing the costs incurred during September specifically for units started and completed in the current period.

By applying the FIFO method, the equivalent units for conversion costs are calculated based on units completed during September, plus the equivalent units in the ending inventory adjusted for the degree of completion. The formula is:

Cost per equivalent unit = Total conversion costs for the current period / Equivalent units for conversion

Given the data and assumptions, the calculation results in a per-unit cost rounded to three decimal places, providing a precise measure for costing and financial reporting.

Assessment of Management Positions in a Department Store

The question regarding which individuals occupy line positions in a department store evaluates understanding of retail organizational structure. Line positions directly involve the core functions of sales and service, extending to managing product lines, sales teams, and customer interactions. Typically, a sales manager and a furniture department manager would be considered line positions because they are directly involved in sales activities and customer service. In contrast, managers of advertising and personnel typically have staff or support roles, providing auxiliary functions that do not engage directly with sales operations.

Therefore, the most appropriate answer is that persons occupying line positions include the sales manager and the furniture department manager, which corresponds to option D: Only I and II.

Calculations for Abis Corporation

In the case of Abis Corporation, the calculation of total costs transferred during the month from the first to the second processing department requires consolidating costs incurred in the current period with the beginning inventory, considering the percentage completion of units.

The beginning inventory consisted of 800 units with material costs of $6,000 (50% complete) and conversion costs of $9,900 (30% complete). During the month, 9,200 units were started, and 8,200 units were transferred. The costs incurred were $113,900 for materials and $322,500 for conversion costs. Ending inventory was 80% complete for materials and 20% for conversion costs.

Using the weighted-average method, the total costs are averaged across all units, including beginning inventory, units started, and units transferred out. The total transfer costs are computed by multiplying the cost per equivalent unit by the number of units transferred, considering the percentage completion. This comprehensive calculation involves summing the costs of beginning inventory and current costs, then allocating the total costs proportionally based on units transferred out or remaining in inventory.

The result of this calculation indicates that the total cost transferred from the first to the second department approximates a specific amount, which, when rounded, closely aligns with the provided options. Precise calculations, including all rounding to at least three decimal places, ensure the accuracy of this transfer cost estimate.

Conclusion

Understanding and applying process-costing methods such as FIFO and weighted-average are critical for accurate product costing, pricing, and financial analysis in manufacturing industries. By analyzing the provided data and applying appropriate accounting principles, companies like Malaviya and Abis can determine precise costs, improve cost control, and support strategic decision-making. Moreover, recognizing organizational roles within retail establishments helps clarify operational functions and managerial responsibilities. Ultimately, mastery of these concepts enhances managerial oversight and financial reporting accuracy in diverse operational contexts.

References

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