Question

Overboard Corporation uses the FIFO method in its process costing system. In the Cutting Department in June, units were 80% complete with respect to conversion in the beginning work in process inventory and 25% complete with respect to conversion in the ending work in process inventory. Other data for the department for June follow: Units Conversion Cost Beginning work in process inventory 20,000 $ 29,000 Units started into production, and costs incurred during the month 150,000 $ 217,000 Units completed and transferred out 130,000 The cost per equivalent unit for conversion cost is closest to:

Answer 1

Answer:

The cost per equivalent unit for conversion cost is closest to: $1.39.

Explanation:

First Calculate the Equivalent units of production with respect to Conversion Costs :

To Finish Opening Work In Process (20,000 × 80%)                       = 16,000

Started and Completed (150,000 - 20,000) × 100%                         = 130,000

Closing Work In Process (40,000 × 25%)                                          = 10,000

Equivalent units of production with respect to Conversion Costs   = 156,000

Then, Calculate the cost per equivalent unit for conversion cost :

Note : We are only interested in the costs incurred in the current year because the costs of Opening Work In Process will automatically go towards the completed units (FIFO).

Cost per equivalent unit = Total Current Costs ÷ Total Equivalent units

                                         = $ 217,000 ÷ 156,000

                                         = $1.39