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

Exercise 31

Compute Costs per Equivalent Unit: FIFO Method

Refer to the data in Exercise 8-29. Compute the cost per equivalent unit for direct materials and for conversion costs using the FIFO method.

Step 1 of 2

Cost per equivalent units of direct materials and conversion costs

All units cannot be wholly completed at the end of a specific period. Some units may be partially complete. Expenses (Material cost and conversion costs) might have been incurred on such units to the extent of their completion. Hence, in order to determine the actual production in a process, the concept of equivalent units is used. The partially completed units are multiplied with their percentage of completion and the resultant figure is considered as whole units produced.

First, calculate the physical units at the end of the period as follows:

Particulars	Number of units
Balance at the start of the period (a)	48,000
Add: Units input (b) = (a) + (b) – (d)	84,000
Less: Units transferred out (c)	102,000
Balance at the end of period (d)	30,000

Now, calculate the equivalent units using FIFO method as follows:

Particulars	Units (a)	Materials	Conversion Costs
		% of completion in the period (b)	Equivalent Units (a) × (b)	% of completion in the period (c)	Equivalent Units (a) × (c)
Work in process at the beginning	48,000	70% (100 – 3)	33,600	70% (100 – 3)	33,600
Work completed during the period	54,000 (102000 – 48000)	100%	54,000	100%	54,000
Work in process at the end	30,000	80%	24,000	40%	12,000
Total	132,000		111,600		99,600