Question

FIFO Method Taxes R Us (TRU), an income tax preparation firm, uses the FIFO method of process costing for its monthly reports. TRU has no materials cost in the preparation of the returns. The following shows its March information:

[LO 6-2, 6-3, 6-5]

Returns in process, March 1 (30% complete) 100
Returns started in March 1,600
Returns in process, March 31 (90% complete) 200
Labor and overhead costs for returns in process, March 1 $2,500
Labor and overhead costs incurred in March $173,250

Required:
Calculate the following amounts for conversion costs using the FIFO method:

1. Number of equivalent units (tax returns).
2. Cost per equivalent unit.
3. Cost of completed tax returns for the month of March.
4. Cost of tax returns in process as of March 31

Answer 1

Answer and Explanation:

The computation is shown below;

But before that return completed & transferred out is

= 100 + 1600 - 200

= 1,500

Now

1) Number of equivalent unit is

= 1,500 + (200 × 90%) - (100 × 30%)

= 1,500 + 180 - 30

= 1,650 units

2) cost per equivalent unit is

= $173,250 ÷ 1,650 units

= $105

3) cost of completed tax returns is

March 1 $2,500

Add: Beginning finished ($105 × 100 × (1 - 0.30) $7,350

Add; started and finished = (105 × (1,500 - 100)) $147,000

Total $156,850

4. The cost of tax retrun in process

= $105 × (200 × 90%)

= $18,900