Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 16

Compute Equivalent Units: FIFO Method

Refer to the data in Exercise 8-15. Assume that beginning inventory is 50 percent complete with respect to materials and 30 percent complete with respect to conversion costs.

Required

a.Compute the equivalent units for materials using FIFO.

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b.Compute the equivalent units for conversion costs using FIFO.

Step 1 of 4

Equivalent units:

Equivalent units of production are an indication to show the work in process inventory at the end of an accounting period. The equivalent units are calculated for allocation of costs of process to the gallons which are fully completed and transferred. It means converting the uncompleted production into completed units.

FIFO method:

FIFO means First-n, First-out. It is one of the assumptions used to value the inventory. It assumes that the inventory purchased first is sold first. It means the ending inventory will consists of only latest purchases subject to the units sold during the period.