Question

Lehman Corp. has two departments: Assembly and Testing. Assembly department had beginning inventory of 750 units which were 50% complete. During the year, 1,200 units were completed and transferred to the Testing department. Ending inventory is comprised of 800 units which were 75% complete. Compute the equivalent units of work done for conversion costs during the year for Lehman Corp. assuming it follows the FIFO process-costing method. Assume direct materials were added at the beginning of the process.

Answer 1

Answer:

Total equivalent unit     1,425 units

Explanation:

Under the first-in -first out system, to account for the units completed in a period, it is assumed that the opening inventory units are first completed and the balance represents the newly introduced.

Fully worked represents unit of inventory started this this period and completed this period

Fully worked = completed units - opening inventory

Fully worked = 1200 -750 = 450 units

Item                        Units                                     Equivalent Units

Opening WIP         750     750×50%                     375

Fully worked          450      450× 100%                   450

Closing WIP           800       800× 75%                 600

Total equivalent unit                                              1,425

Note the opening inventory has 50% work done last period so the balance of 50% i.e (100 - 50)  is completed this period