Question

Richards Corporation uses the FIFO method of process costing. The following information is available for October in its Fabricating Department:

Units:
Beginning Inventory: 100,000 units, 80% complete as to materials and 25% complete as to conversion.
Units started and completed: 270,000.
Units completed and transferred out: 370,000.
Ending Inventory: 40,000 units, 40% complete as to materials and 10% complete as to conversion.

Costs:
Costs in beginning Work in Process - Direct Materials: $57,200.
Costs in beginning Work in Process - Conversion: $99,700.
Costs incurred in October - Direct Materials: $828,520.
Costs incurred in October - Conversion: $1,103,900.

Calculate the cost per equivalent unit of conversion.

Multiple Choice

$2.65

$3.45

$3.16

$4.09

$2.91

Answer 1

$3.16

Working:

a. Calculation of equivalent units of production:
		Materials			Conversion
	Physical Units	% Materials	Equivalent units of Production-Material		% Materials	Equivalent units of Production-Material
Beginning Inventory	1,00,000	20%	20,000		75%	75,000
Units started and completed during this period	2,70,000	100%	2,70,000		100%	2,70,000
Ending Inventory	40,000	40%	16,000		10%	4,000
Total			3,06,000			3,49,000
b. Calculation of cost per equivalent unit
		Materials	Conversion
Cost incurred during the period		$                   8,28,520	$             11,03,900
/Equivalent units of production		3,06,000	3,49,000
Cost per Equivalent unit		$                           2.71	$                       3.16