Cherrington Company uses a process costing system. For May, the month just completed, the beginning work in process inventory consisted of 50,000 units which were 60% complete with respect to conversion costs. The ending inventory for the month was 20% complete with respect to conversion costs. A summary of cost data for the month follows:

-Using the FIFO method, the cost per equivalent unit of conversion cost for May is closest to:
A) $5.65
B) $5.83
C) $6.00
D) $6.20

Question

Cherrington Company uses a process costing system. For May, the month just completed, the beginning work in process inventory consisted of 50,000 units which were 60% complete with respect to conversion costs. The ending inventory for the month was 20% complete with respect to conversion costs. A summary of cost data for the month follows:

-Using the FIFO method, the cost per equivalent unit of conversion cost for May is closest to:

-Using the FIFO method, the cost per equivalent unit of conversion cost for May is closest to:
A) $5.65 
B) $5.83 
C) $6.00 
D) $6.20

Quizplus · Accepted Answer

To calculate the cost per equivalent unit of conversion costs using the FIFO method, we need to identify the costs incurred during the period and the proportion of work completed.

The costs incurred during May were:
Direct Materials: $11,000
Conversion costs: $23,200

To calculate the equivalent units of conversion costs, we need to consider the percentage of completion of the beginning work in process and the units started and completed during the month.

Equivalent units of conversion costs = (Units started and completed in May x Percentage complete) + (Beginning work in process units x Percentage complete)

Equivalent units of conversion costs = (19,000 x 100%) + (6,000 x 20%)
Equivalent units of conversion costs = 19,000 + 1,200
Equivalent units of conversion costs = 20,200

To calculate the cost per equivalent unit of conversion costs, we can divide the total conversion costs incurred during May by the equivalent units calculated above.

Cost per equivalent unit of conversion costs = Total conversion costs incurred / Equivalent units of conversion costs

Cost per equivalent unit of conversion costs = $23,200 / 20,200
Cost per equivalent unit of conversion costs = $1.1495 or $5.83 (rounded to the nearest cent)

Therefore, the closest answer option is B) $5.83.

Cherrington Company Uses a Process Costing System