Question

Richards Corporation uses the FIFO method of process costing. The following information is available for October in its Fabricating Department: Units: Beginning Inventory: 80,000 units, 60% complete as to materials and 20% complete as to conversion. Units started and completed: 250,000. Units completed and transferred out: 330,000. Ending Inventory: 30,000 units, 40% complete as to materials and 10% complete as to conversion. Costs: Costs in beginning Work in Process - Direct Materials: $37,200. Costs in beginning Work in Process - Conversion: $79,700. Costs incurred in October - Direct Materials: $646,800. Costs incurred in October - Conversion: $919,300. Calculate the equivalent units of conversion.

Answer 1

Answer:

Equivalent units of conversion cost = 317,000 units

Explanation:

The equivalent unit is the notional whole units which represent incomplete work and is used to apportion cost between cost between work in progress and completed units

Item                units                                                  Equivalent units

Opening WIP   80,000      (80,000× 80%)   =      64,000

Fully worked   250,000     (250,000× 100)  =      250,000

Closing WIP     30,000      (30,000× 10%)    =        3,000

Total equivalent units                                               317,000.

1. DOC for opening inventory is 80%, that is 100%-20%. Remember that 20% work has been done in the previous period, so the balance is to be done in this current period

2. Fully work represent the units of inventory introduced in the current period and completed in the same period. Meaning 100% work was achieved in October .

3. Closing work is only 10% completed. This represent work started this period but not yet completed.