Question

In: Accounting

Jensen Corporation The following information is available for Jensen Corporation for the current month: Started this...

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

Solutions

Expert Solution

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


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