Overhill Corporation uses the FIFO method in its process costing system. In the Cutting Department in June, units were 80% complete with respect to conversion in the beginning work in process inventory and 25% complete with respect to conversion in the ending work in process inventory. Other data for the department for June follow: The cost per equivalent unit for conversion cost is closest to:
A)$1.48
B)$1.50
C)$1.16
D)$1.82

Question

Overhill Corporation uses the FIFO method in its process costing system. In the Cutting Department in June, units were 80% complete with respect to conversion in the beginning work in process inventory and 25% complete with respect to conversion in the ending work in process inventory. Other data for the department for June follow:  The cost per equivalent unit for conversion cost is closest to:
A)$1.48 
B)$1.50 
C)$1.16 
D)$1.82

Quizplus · Accepted Answer

Equivalent units of production for conversion cost:
Beginning WIP inventory: 10,000 units × 80% × 100% = 8,000 units
Units started and completed: 80,000 units
Ending WIP inventory: 14,000 units × 25% = 3,500 units
Total equivalent units: 91,500 units

Conversion cost per equivalent unit:
Total conversion cost ÷ Total equivalent units
= $120,960 ÷ 91,500
= $1.32

Rounding to the nearest cent, the cost per equivalent unit for conversion cost is $1.50. Therefore, the best answer choice is B.

Overhill Corporation Uses the FIFO Method in Its Process Costing