Question

A production department in a process manufacturing system completed its work on 84,000 units of product and transferred them to the next department during a recent period. Of these units, 25,200 were in process at the beginning of the period. The other 58,800 units were started and completed during the period. At period-end, 16,200 units were in process. Prepare the department’s equivalent units of production with respect to direct materials under each of the three separate assumptions using the FIFO method for process costing

Answer 1

Answer:

FIFO method equivalent units are obtained by adding the beginning WIP and units started and deducting the ending WIP.

The equivalent units under each of the three assumptions are

Materials Conversion 67,800           67,800

Materials Conversion56730           56730

Materials Conversion 69060           69060

Explanation:

Assumption 1 : all materials are added at the beginning of the process and conversion is 100% complete

Particulars    Units          % of Completion             Equivalent Units

                                     Materials  Conversion        Materials  Conversion

BWIP       25,200       100              100                   25,200       25,200

Add

Units Started 58,800                                            58,800         58,800

Less

Units Completed

                   16,200                                               16,200            16,200

Equivalent Units                                                   67,800           67,800

Assumption 2:

Beginning Inventory is 40% complete as to materials and conversions and ending inventory is complete 75 %as to materials and conversions.

Particulars    Units          % of Completion             Equivalent Units

                                     Materials  Conversion        Materials  Conversion

BWIP       25,200        40              40                   10,080       10,080

Add

Units Started 58,800                                             58,800         58,800

Less

Units Completed

                   16,200       75                  75               12150            12150

Equivalent Units                                                   56730           56730

Assumption 3:

Beginning Inventory is 60% complete as to materials and conversions and ending inventory is complete 30 %as to materials and conversions.

Particulars    Units          % of Completion             Equivalent Units

                                     Materials  Conversion        Materials  Conversion

BWIP       25,200        60              60                   15,120       15,120

Add

Units Started 58,800                                             58,800         58,800

Less

Units Completed

                   16,200       30                  30               4860            4860

Equivalent Units                                                   69060           69060

FIFO method equivalent units are obtained by adding the beginning WIP and units started and deducting the ending WIP.