A company uses a process costing system. Its Assembly Department's beginning inventory consisted of 30,000 units, 75% complete with respect to direct labor and overhead. The department completed and transferred out 127,500 units this period. The ending inventory consists of 20,000 units that are 25% complete with respect to direct labor and overhead. All direct materials are added at the beginning of the process. The department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the period. Assuming the weighted average method, the direct labor cost per equivalent unit (rounded to the nearest cent) is:
A) $0.16.
B) $0.18.
C) $0.14.
D) $0.30.
E) $0.37.

Question

Quizplus · Accepted Answer

First, we need to calculate the equivalent units of production for direct labor.

Equivalent units of production = Units completed and transferred out + (Ending inventory units * Completion percentage) - Beginning inventory units
Equivalent units of production = 127,500 + (20,000 * 25%) - 30,000 
Equivalent units of production = 127,500 + 5,000 - 30,000 
Equivalent units of production = 102,500

Next, we need to calculate the total direct labor cost per unit.

Total direct labor cost = Direct labor costs for the period = $24,000 
Total equivalent units of production = 102,500 
Direct labor cost per unit = Total direct labor cost / Total equivalent units of production 
Direct labor cost per unit = $24,000 / 102,500 
Direct labor cost per unit ≈ $0.234

Finally, we need to round the direct labor cost per unit to the nearest cent, which is $0.18. Therefore, the answer is B.

A Company Uses a Process Costing System