What is FOH Inventory Meaning?

In inventory management, First-In-First-Out (FIFO) is one of the most widely used methods to track and manage inventory. When it comes to understanding FOH inventory meaning, it's essential to understand how FIFO works in combination with other elements such as raw materials, production ratio, equivalent units, unit cost, and stage of completion.

Understanding Raw Materials

In this context, we are dealing with a situation where 440,000 kg of material is purchased at $1.10 per kg, totaling $484,000. After transferring 60,000 kg to production, there remains 80,000 kg in closing inventory valued at $1.10 per kg, resulting in a total value of $88,000. On the other hand, we have opening inventory consisting of 100,000 kg with a value of $100,000.

Production Ratio and Equivalent Units

The production ratio for this process is 2 kg to 1 unit of finished product. Under FIFO, equivalent units need to be calculated for both materials and conversion. This involves calculating the total number of units produced during a specific period, including those that are still in work-in-progress (WIP) at the end of that period.

Unit Cost Calculation

Using the FIFO method, we can calculate the unit cost for each of the three elements: material, labor, and conversion. This involves dividing the total value of materials, labor, or conversion by the number of equivalent units produced during a specific period.

Cost of Units Transferred to Finished Goods Inventory

Under FIFO, when units are transferred from WIP to finished goods inventory, we need to calculate the cost of those units. In this case, the stage of completion is 100% for material and 33.333% for conversion. This means that the unit cost of the units transferred will be a combination of the costs of materials and labor.

Cost of Ending Work-in-Progress

The WIP opening inventory consists of 20,000 units with a value of $84,000. Under FIFO, we need to calculate the cost of ending WIP by multiplying the number of equivalent units produced during a specific period by the unit cost calculated earlier.

Number of Units Sold and Cost of Finished Goods Inventory

The finished goods opening inventory consists of 40,000 units with a value of $448,000. The closing inventory has 24,000 units. Under FIFO, we need to calculate the number of units sold and the cost of finished goods inventory. Since the stage of completion is 100% for material and 40% for labor, the unit cost will be a combination of these costs.

In conclusion, understanding FOH inventory meaning involves grasping the fundamentals of FIFO, raw materials, production ratio, equivalent units, unit cost, and stage of completion. By applying these concepts, businesses can accurately track and manage their inventory levels and make informed decisions about production and pricing.

Foh inventory meaning