Question

Pacific Ink had beginning work-in-process inventory of $754,960 on October 1. Of this amount, $309,920 was the cost of direct materials and $445,040 was the cost of conversion.The 53,000 units in the beginning inventory were 25 percent complete with respect to both direct materials and conversion costs.

During October, 112,000 units were transferred out and 35,000 remained in ending inventory.The units in ending inventory were 75 percent complete with respect to direct materials and 35 percent complete with respect to conversion costs. Costs incurred during the period amounted to $2,687,500 for direct materials and $3,429,900 for conversion.

Required:

(1) Compute the equivalent units for the materials and conversion cost calculations.

(2) Compute the cost per equivalent unit for direct materials and for conversion costs using the FIFO method.

Answer 1

Answer

• Requirement 1: Equivalent units

NOTE: Since its not been mentioned which Method to use in Requirement 1, Answers are provided using both the methods – FIFO and Weighted Average

>FIFO Method

EUP - FIFO Method	Units	% Material	EUP Materials	% Conversion	EUP - Conversion
Units of ENDING WIP	35,000	75%	26,250	35%	12,250
Units STARTED & COMPLETED	59,000	100%	59,000	100%	59,000
Units of beginning WIP	53,000	75%	39,750	75%	39,750
Equivalent Units of Production = ANSWERS			125,000		111,000

>Weighted Average Method

EUP - Weighted Average Method	Units	% Material	EUP Materials	% Conversion	EUP - Conversion
Units TRANSFERRED	112,000	100%	112,000	100%	112,000
Units of ENDING WIP	35,000	75%	26,250	35%	12,250
Equivalent Units of Production = ANSWERS			138,250		124,250

• Requirement 2: Specifically asks for FIFO Method

COST per EUP			Material		Conversion
Cost incurred this period			$    2,687,500.00		$              3,429,900.00
Total Costs		Costs	$    2,687,500.00	Costs	$              3,429,900.00
Equivalent units of production		EUP	125,000	EUP	111,000
Cost per EUP = ANSWERS			$           21.50 = Answer		$                     30.90 = Answer