Question

Caston Corp. uses a FIFO process costing system in which direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory for January consisted of 1,000 units that were 40% completed with respect to conversion costs. 10,000 units were started into the process during January. On January 31, the inventory consisted of 500 units. Equivalent units for conversion costs were 10,450. What percentage complete was the ending inventory on January 31 with respect to conversion costs?

Answer 1

• All working forms part of the answer
• Reconciliation of Units

	Units
Beginning Inventory	1000
Introduced	10000
Total	11000
Transferred [11000 – 500]	10500
Closing WIP	500

• Applying FIFO method, of the total Transferred 10,500 units, 1000 units from beginning inventory and remaining 9,500 units were from ‘introduced during the period’ units.
• Equivalent Units for Units Transferred [Total 10500 units]

---1000 units from beginning inventory, 40% already completed, hence completed during the period = 60%. Equivalent Units = 1000 units x 60% = 600 units

---9500 units from units introduced, 100% completed during period. Equivalent Units = 9500 units x 100% = 9,500 units.

TOTAL Equivalent Units for Units Transferred = 9500 + 600 = 10,100 units

• Total Equivalent Units given in Question = 10,450 units.

Hence, Equivalent no. of units for Ending Inventory = 10,450 units – 10,100 units = 350 units.

350 units = Equivalent Units for Ending Inventory.

Percentage of completion = Equivalent Units for ending inventory / Total Ending Inventory

= 350 units / 500 units = 70%

• Hence, the ending inventory on January 31 with respect to conversion costs was 70% complete.