Question

LO 5.3What are the four steps involved in determining the cost of inventory transferred from one department to the next and the cost of work in process inventory?

Answer 1

Answer and explanation:

Carrying Cost of Inventory is the cost a business pays for holding goods in stock. It is calculated by dividing the total inventory value by the total cost of storing goods and it is usually expressed as a percentage. The carrying cost of inventory includes taxes, employee costs, depreciation, insurance, opportunity costs, and the costs of capital that help to create income for a business. The four steps  involved in determining the cost of inventory transferred from one department to another are:

• Determine the units to be assigned costs.  
• Calculate equivalent units of production.
• Allocate costs to transferred and partially completed units.
• Determine the cost per equivalent unit.