Use the information below to answer the following question(s).Hollywood North Magic, a cosmetic manufacturer, began operations in January.During the first month of operations, $60,000 was incurred for direct materials and $80,000 was incurred for conversion costs.During January, 30,000 litres of cosmetics were started and 6,000 litres were unfinished at the end of the month.Ending work-in-process was 45% completed.All inputs are added evenly throughout the production process.
-Calculate the equivalent units for conversion costs in January using the FIFO method.
A)24,000 litres
B)26,700 litres
C)30,000 litres
D)36,000 litres
E)39,000 litres

Question

Quizplus · Accepted Answer

Equivalent units for conversion costs = (Units completed and transferred out + Ending work-in-process x percentage of completion) x conversion costs per unit.
Units completed and transferred out = 30,000 litres - 6,000 litres = 24,000 litres
Conversion costs per unit = $80,000 ÷ 30,000 litres = $2.67 per litre
Ending work-in-process in litres = 6,000 litres x 45% = 2,700 litres
Equivalent units for conversion costs = (24,000 litres + 2,700 litres) x $2.67 per litre = $68,259
Therefore, the answer is B) 26,700 litres which is the equivalent units for conversion costs calculated using the FIFO method.

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