If a department that applies FIFO process costing starts the reporting period with 50,000 physical units that were 25% complete with respect to direct materials and 40% complete with respect to conversion, it must add 12,500 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.

Question

Quizplus · Accepted Answer

The calculation for equivalent units should consider the percentage needed to complete the units, not the percentage already completed. For direct materials, it's 75% needed to complete (100% - 25% = 75%), and for conversion, it's 60% needed (100% - 40% = 60%). Therefore, the equivalent units for direct materials would be 37,500 (50,000 units * 75%) and for conversion would be 30,000 (50,000 units * 60%), not 12,500 and 20,000 respectively.

If a Department That Applies FIFO Process Costing Starts the Reporting