Question

On March 1, Portland Company had 20,000 units of work in process in Department A, which were 100% complete as to material costs and 40% complete as to conversion costs. During March, 150,000 units were started in Department A and 160,000 units were completed and transferred to Department B. Work in process on March 31 was 100% complete as to material costs and 50% complete as to conversion costs. By what amount would the equivalent units for conversion costs for the month of March differ if the FIFO method were used instead of the weighted-average method?

10,000 decrease.

8,000 decrease.

6,000 decrease.

5,000 decrease.

4,000 decrease.

Answer 1

• All working forms part of the answer
• Working #1:

Units Reconciliation
Units to account for:
Beginning WIP	20,000
Units started this period	150,000
Total Units to account for	170,000
Total Units accounted for:
Completed & Transferred out	160,000
Ending WIP	10,000
Total Units accounted for	170,000

• Working #2: Equivalent units as per Weighted Average Method

--In Weighted Average method, beginning WIP units are not considered

EUP - Weighted Average Method	Units	% Material	EUP Materials	% Conversion	EUP - Conversion
Units TRANSFERRED	160,000	100%	160,000	100%	160,000
Units of ENDING WIP	10,000	100%	10,000	50%	5,000
Equivalent Units of Production			170,000		165,000

--Equivalent units for Conversion = 165,000 units

• Working #3: Equivalent units as per FIFO Method

--Under this method, units transferred are first taken from Beginning WIP

--Units transferred = 160,000 [ 20,000 from Beginning WIP, remaining 140,000 from units started]

EUP - FIFO Method	Units	% Material	EUP Materials	% Conversion	EUP - Conversion
Units of ENDING WIP	10,000	100%	10,000	50%	5,000
Units of beginning WIP	20,000	0%	-	60%	12,000
Units STARTED & COMPLETED	140,000	100%	140,000	100%	140,000
Equivalent Units of Production			150,000		157,000

--Equivalent units for Conversion = 157,000 units

• Answer:

Equivalent units as per Weighted average method for Conversion cost = 165,000 units

Equivalent units as per FIFO Method for Conversion cost = 157,000 units

Units under FIFO are LESS than under Weighted Average method.

Difference = 165000 – 157000 = 8,000 units.

Correct Answer: Option #2: 8,000 decrease.