Question

Richards Corporation uses the FIFO method of process costing. The following information is available for October in its Fabricating Department: Units: Beginning Inventory: 92,000 units, 80% complete as to materials and 25% complete as to conversion. Units started and completed: 262,000. Units completed and transferred out: 354,000. Ending Inventory: 36,000 units, 30% complete as to materials and 10% complete as to conversion. Costs: Costs in beginning Work in Process - Direct Materials: $49,200. Costs in beginning Work in Process - Conversion: $91,700. Costs incurred in October - Direct Materials: $744,600. Costs incurred in October - Conversion: $1,100,620. Calculate the cost per equivalent unit of conversion.

Answer 1

Answer:

The cost per equivalent unit of conversion is $2.56

Explanation:

Beginning inventory = 92,000 units

Units started and completed = 262,000 units

Units completed and transferred out: 354,000 units

Ending Inventory: 36,000 units

Equivalent unit of materials = (92,000 × 20%) + 262,000 + (36,000 × 30%)

= 291,200 units

Direct materials = $744,600

Cost per equivalent unit of materials = Direct materials ÷ Equivalent unit of materials

=$744,600 ÷ 291,200 = $2.56

Answer 2

Answer:

Cost per unit of conversion cos= $3.56 per unit

Explanation:

Cost per unit of conversion cost = Total cost/ total equivalent unit

Item                                 Units                                           Equivalent unit

Opening inventory       92,000   75% ×92,000    =                69000

Fully worked                  262,000   100%  ×  262,000  =       262000

Closing inventory           36,000      10%× 36,000    =            3600

Total equivalent unit                                                                 334,600

Cost per unit of conversion cost = Total cost/ total equivalent unit

= (91,700 + 1,100,620 )/ 334,600  units

= $3.56 per unit

Note also at that the degree of completion for opening inventory is the simply the balance of work remaining to be done.

For example, for materials, 25% of work has been done on the opening inventory in the last period, hence the balance of 75% would be done this period