In: Accounting
Jensen Corporation
The following information is available for Jensen Corporation for
the current month:
Started this month | 80,000 | units |
Beginning WIP | ||
(40% complete) | 7,500 | units |
Normal Spoilage (discrete) | 1,100 | units |
Abnormal spoilage | 900 | units |
Ending WIP | ||
(70% complete) | 13,000 | units |
Transferred out | 72,500 | units |
Beginning Work in Process Costs: | ||
Material | $10,400 | |
Conversion | 13,800 | |
Current Costs: | ||
Material | $120,000 | |
Conversion | 350,000 |
All materials are added at the start of production and the
inspection point is at the end of the process.
Refer to Jensen Corporation. What is cost per equivalent unit for conversion costs using FIFO?
Select one:
a. $4.38
b. $4.00
c. $4.34
d. $4.19
The cost per equivalent unit of conversion costs using FIFO is (c) $4.34
Calculation / Explanation:
In orde to compute the cost per equivalent unit of conversion cost, we first compute the Equivalent Units of Production (EUP).
Step 1: Computation of EUP
Units | % completed | EUP | |
Beginning WIP | 7,500 | 60% | 4,500 |
Units started and completed | 65,000 | 100% | 65,000 |
Ending WIP | 13,000 | 70% | 9,100 |
Normal spoilage (discrete) | 1,100 | 100% | 1,100 |
Abnormal spoilage | 900 | 100% | 900 |
Equivalent Units of Production | 80,600 |
Notes:
1. Under FIFO method, it is assumed that the beginning WIP will be completed first. Thus, EUP for beginning inventory will be calculated as beginning WIP x (100% - % complete). Here, it is calculated as 7500 units x (100%-40%) or 7500 units x 60% = 4500 units. (60% shows how much work is necessary to make the unit 100% complete).
2. Units started and completed = Units Transferred out - beginning WIP; 72500 - 7500 = 65000 units.
3. Normal and Abnormal spoilage is assumed to be 100% complete as the point of inspection is at the end of the process.
Step 2: Cost per equivalent unit of conversion costs
In order to find out the cost per equivalent unit of conversion costs using FIFO; we divide the current conversion costs by the EUP (under FIFO only current costs are assumed for cost computation)
Current Costs | |
Conversion Costs | $ 350,000 |
EUP | 80,600 |
Cost per equivalent unit of conversion costs | $ 4.34 |
Thus, correct option is (C) $4.34