A company uses a process costing system. Its Assembly Department\'s beginning in

Question

A company uses a process costing system. Its Assembly Department's beginning inventory consisted of 30,000 units, 75% complete with respect to direct labor and overhead. The department completed and transferred out 127,500 units this period. The ending inventory consists of 20,000 units that are 25% complete with respect to direct labor and overhead. All direct materials are added at the beginning of the process. The department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average method, the direct labor cost per equivalent unit (rounded to the nearest cent) is

Explanation / Answer

No. of Equivalent Units completed Opening WIP 7500 25% completed during the month Units transferred 127500 100% complete Closing WIP 5000 25% complete for Labor and Overheads Total Equivalent Units 130000 Cost for Labor incurred 24000 Cost per equivalent unit of labor 0.184615 = 0.18 per equivalent unit To compute equivalent units of production, one must be able to reasonably estimate the units started and completed. In most process costing systems, direct materials are added at the beginning of the process while conversion costs are added evenly throughout the manufacturing process. This is the best explanation for why it is necessary to calculate equivaleny units of production in a process costing environment.

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