Question

First-In, First-Out Method; Equivalent Units

Aztec Inc. produces soft drinks. Mixing is the first department, and its output is measured in gallons. Aztec uses the FIFO method. All manufacturing costs are added uniformly. For July, the mixing department provided the following information:

Production:
Units in process, July 1, 80% complete		60,000 gallons
Units completed and transferred out		390,000 gallons
Units in process, July 31, 75% complete		24,000 gallons
Costs:
Work in process, July 1		$ 96,000
Costs added during July		780,000

Required:

1. Calculate the equivalent units for July.
equivalent units

2. Calculate the unit cost. Round your answer to the nearest cent.
$per unit

3. Assign costs to units transferred out and EWIP using the FIFO method. Note: Do not round interim computations.

Cost of units transferred out	$
Ending work in process	$

Answer 1

Answer :-

1)The equivalent units for July are as follows :-

Equivalent Units
Particular	Total Units	% completed this period	Equivalent Units
Units in process, July 1	60,000	20%	12,000
Units started and completed (Units completed and transferred out - Unit in Process,July 1 = 390,000 - 60,000)	330,000	100%	330,000
Units in process, July 31, 75% complete	24,000	75%	18,000
Total Equivalents Unit of Production	414,000		360,000

Equivalents Unit of Production = 360,000 units

2)Unit cost = Cost added during July / Total Equivalents Unit of Production

Cost added during July = $780,000

Total Equivalents Unit of Production = 360,000 units

Unit Cost = $780,000 / 360,000 units = $2.16666 per unit

Unit Cost = $2.17 per unit (approx.)

3)Costs to units transferred out and EWIP using the FIFO method are as follows :-

Costs to Units Transferred out = Work in Process,July 1 costs + Cost to finish Units in process, July 1+ Cost of units started and completed

Work in Process , July 1 Costs = $96,000

Cost to Finish Unit in Process , July 1 = Equivalents Units in Process,July 1 × Unit cost per unit

Cost to Finish Unit in Process, July 1 = 12,000 units × $2.16666 = $26,000

Cost of Units Started and Completed = Equivalents Unit started and completed × Unit Cost

Cost of Units Started and Completed = 330,000 units × $2.16666 = $715,000

Cost of Units Transferred out = $96,000 +$26,000 + $715,000

Cost of Units Transferred out = $837,000

Ending Work in Process = Equivalents Units in Process , July 31 × Unit Cost

Ending Work in Process = 18,000 × $2.16666

Ending Work in Process = $39,000