Question

Costs per Equivalent Unit

The following information concerns production in the Baking Department for May. All direct materials are placed in process at the beginning of production.

ACCOUNT Work in Process—Baking Department							ACCOUNT NO.
Date		Item	Debit		Credit		Balance
							Debit		Credit
May.	1	Bal., 8,400 units, 1/3 completed					20,020
	31	Direct materials, 151,200 units	317,520				337,540
	31	Direct labor	89,590				427,130
	31	Factory overhead	50,396				477,526
	31	Goods finished, 153,300 units			459,760		17,766
	31	Bal. ? units, 4/5 completed					17,766

a. Based on the above data, determine each cost listed below. Round "cost per equivalent unit" answers to the nearest cent.

1. Direct materials cost per equivalent unit.	$
2. Conversion cost per equivalent unit.	$
3. Cost of the beginning work in process completed during May.	$
4. Cost of units started and completed during May.	$
5. Cost of the ending work in process.	$

b. Assuming that the direct materials cost is the same for April and May, did the conversion cost per equivalent unit increase, decrease, or remain the same in May?
SelectDecreaseIncreaseRemain the sameItem 6

Answer 1

1) $2.1 per unit

($317,520/151,200 Units)

2) $0.91 Per unit

( (Direct Cost + Factory Overhead) / No of units produced), ($89,590 + $50,396) / 153,300 Units

3) $8,400

(Cost per finished good * no of begning work in progress units), ($459,760/153,300) * (8,400*1/3), 3 * 2,800.

4)$3.00

( $459,760/153,300 Units)

5)$3,066

Closing balance of working in progress - ((Opening balance of finished goods + work in progress goods converted to finished goods during the months)*Cost for units finished),

Opening balance of finished goods = 2,800 ( 8,400 Units * 1/3)

WIP converted to finished during the month = 2,100 (Goods Finished 153,300 - Direct Materials 151,200)

Cost per unit = 3 ($459,760/153,300 Units)

So, $17,766 - ((2,800 units + 2,100 units) * 3) = $3,066

6) It may increase, decrease, or remain the same, because Conversion costs are production costs required to convert raw materials into completed products. The change in Direct lobour cost and factory overhead leads to change in conversion costs not the direct materials cost.