Question

The following data are available for a company's manufacturing activities:Beginning Work in Process inventory 5,000 units 75% completed as to direct laborUnits started and completed 15,000 Ending Work in Process inventory 6,000 units 50% completed as to laborIf materials are added when the production process begins and direct labor is applied uniformly throughout the process, what are the equivalent units for direct materials and for direct labor, respectively using the FIFO method of process costing?

Answer 1

Answer:

Equivalent units of Material = 21000

Equivalent units of Labor = 21750

Explanation:

Under the FIFO method, inventory which is purchased and/or processed at the beginning should be sold first and the closing and/or latest inventory remains to be sold for later sales. As far as process costing is concerned it's a costing method used to assign costs to units produced mostly of a similar nature. So the question is asking for the equivalent units for direct material and labor. Equivalent units are amount of partial units produced which are expressed in terms of fully completed units.

On the ending WIP inventory and units started & completed 100% material has been consumed so the equivalent units of direct material would be the total of beginning and ending inventory, see as follows;

Equivalent units of Material = 15000 + 6000

EUM= 21000

Whereas for labor, beginning inventory, units started & completed and ending inventory has consumed 75%, 100% and 50% of labor respectively. Therefor, the equivalent units of labor are as follows;

Equivalent units of Labor = (5000× 75%) + 15000 + (6000× 50%)

Equivalent units of Labor = 21750