Forthefunofit Ltd uses a process costing system. Direct materials are added at the beginning of the process. During January, Department A had a beginning inventory of 2,000 units, 50% complete for conversion costs. During the month 14,000 units were started and there were 1,000 units in ending inventory, 40% complete for conversion costs. Using FIFO process costing, the equivalent units for conversion costs for the month were:
A) 14,400
B) 15,400
C) 16,000
D) 14,100

Question

Quizplus · Accepted Answer

Under FIFO, equivalent units for conversion costs are calculated by considering the work done during the current period. The beginning inventory of 2,000 units needs 50% more work, which is 1,000 equivalent units. The units started and completed are 14,000 - 1,000 (ending inventory) = 13,000 units. The ending inventory of 1,000 units is 40% complete, contributing 400 equivalent units. Therefore, the total equivalent units for conversion costs are 1,000 + 13,000 + 400 = 14,400.

Forthefunofit Ltd Uses a Process Costing System