Edward Company uses the FIFO method in its process costing system. The first pro
ID: 2435206 • Letter: E
Question
Edward Company uses the FIFO method in its process costing system. The first processing department, the Welding Department, started the month with 10,000 units in its beginning work in process inventory that were 40% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $12,800. An additional 94,000 units were started into production during the month. There were 14,000 units in the ending work in process inventory of the Welding Department that were 80% complete with respect to conversion costs. A total of $286,740 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs?
A)2.88
B) 3.2
C) 2.95
I know answer is C. I know how to get it. But what is that $12,800 in beginning work in process???
That got me little confused... Because that $12,800 has nothing to do with getting the cost per equivalent unit. I am thinking $12,800 is how much those 10,000 units actually cost??
Explanation / Answer
Begining WIP 10,000 units is 40% complete rest 60% need to be completed in current month.
FIFO costing excludes the equivalent units and costs in beginning work in process (prior-period costs) from the current-period unit cost calculations.
Only current-period work and current-period costs are used to compute FIFO unit costs.
Begining WIP 10,000 units x (100 - 40%) 6,000 units
Units started and completed in current month
(94,000 - 14,000) 80,000 units
Ending WIP 14,000 units x 80% 11,200 units
Equivalent units of production 97,200 units
Cost per equivalent unit for conversion costs = $286,740 / 97,200
= $2.95
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