Question

Owens Corporation uses a process costing system. For March, the beginning work in process inventory consisted of 60,000 units that were 60% complete with respect to processing. The ending work in process inventory for the month consisted of units that were 20% complete with respect to processing. A summary of unit and cost data for the month follows:
Units Processing Cost
Work-in-process inventory, March 1 60,000 $ 35,000
Units started into production and costs incurred during the month 190,000 $ 700,000
Units completed and transferred out 200,000
Assuming that Owens Corporation uses the FIFO method, which of the following is closest to the cost per equivalent unit for processing cost for March?
A) $3.23
B) $3.98
C) $4.02
D) $4.22

Answer 1

Answer:

C) $4.02

Explanation:

The computation of cost per equivalent unit for processing cost for March is shown below:-

As we know that

Beginning work in process inventory units + Units started into production  = Ending work in process inventory units + Units completed and transferred out

60,000 + 190,000 = Units in ending work in process inventory + 200,000

Units in ending work in process inventory is

= 60,000 + 190,000 - 200,000

= 50,000

To complete the beginning work in process inventory:-      

Processing:                                                     24,000

60,000 units ×(100% - 60%) a

Units started and completed                          140,000

(200,000 − 60,000) b

Ending work in process inventory Processing:

50,000 units × 20% c                                      10,000

Equivalent units of production                        174,000

Cost added throughout the period e            7,00,000

Equivalent units of production f                     174,000

Cost per equivalent unit e ÷ f                             $4.02