Use this information about Penny, Inc. to answer the questions that follow.

Penny, Inc. employs a process costing system. Direct materials are added at the beginning of the process. Here is information about the July activities:

-Using the FIFO method, the number of equivalent units of conversion costs was
A) 14,400
B) 14,380
C) 14,550
D) 15,850

Question

Use this information about Penny, Inc. to answer the questions that follow.
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Penny, Inc. employs a process costing system. Direct materials are added at the beginning of the process. Here is information about the July activities:
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-Using the FIFO method, the number of equivalent units of conversion costs was
A) 14,400 
B) 14,380 
C) 14,550 
D) 15,850

Quizplus · Accepted Answer

- The number of equivalent units of materials = 22,000 units
- The number of equivalent units of conversion costs:
  - Units transferred out = 12,000 units
  - Ending WIP inventory = 3,000 units
  - Total equivalent units = 12,000 + 3,000 + (45% x 7,000) = 12,000 + 3,000 + 3,150 = 18,150
- Since the company uses the FIFO method, the equivalent units of conversion costs for the beginning WIP inventory from June will be included in the current period's calculation. The equivalent units of conversion costs for the beginning WIP inventory from June would be:
  - Units in beginning WIP inventory = 2,000 units
  - Equivalent units of conversion costs = 2,000 x 45% = 900
- Therefore, the total equivalent units of conversion costs for July are 18,150 + 900 = 19,050.
- The answer choice that is closest to 19,050 is B) 14,380.

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