Exercise 1: Computation of equivalent units under weighted average and FIFO method

By: Rashid Javed | Updated on: March 8th, 2024

Learning objective:
This exercise illustrates the computation of equivalent units of production under both the weighted average and the FIFO method.

Exercise 1 (a):

Mexico Company manufactures a single product that goes through two departments. The data relating to activity performed in the first department during the month of June is given below:

Equivalent units of production - exercise 1 data

Required: Compute the equivalent units of production assuming the company uses:

  1. a weighted average method.
  2. a FIFO method.

Solution

1. Equivalent units of production under weighted average method:

Computation of equivalent units of production under weighted average method

2. Equivalent units of production under FIFO method:

Computation of equivalent units of production under FIFO method

Exercise 1 (b):

The following data belongs to three different independent situations:

  1. Situation 1:
    Started in process: 26,000 units
    Transferred out: 22,000 units
    Work in process ending inventory: 1,600 units 1/2 completed and 2,400 units 1/4 completed
  2. Situation 2:
    Work in process beginning inventory: 25,000 units, 2/5 completed
    Started in process: 100,000 units
    Transferred out: 105,000 units
    Work in process ending inventory: 12,000 units 1/2 completed and 8,000 units 1/4 completed
  3. Situation 3:
    Work in process beginning inventory: 18,000 units 1/3 completed and 12,000 units 1/2 completed
    Started in process: 75,000 units
    Transferred out: 90,000 units
    Work in process ending inventory: 6,000 units 1/2 completed and 9,000 units 1/3 completed

Units transferred out are 100% complete with respect to all cost elements. The stages of completion mentioned for beginning and ending inventories are applicable to all cost elements.

Required: Compute the equivalent production in each of the above situations using:

  1. the weighted average costing method.
  2. the FIFO costing method.

Solution

1. Equivalent production under weighted average method:

Computation of equivalent units under weighted average method

*Equivalent units in ending inventory:

The equivalent units in work-in-process ending inventory consist of the percentage of work done in the current period. The computations of equivalent units in work-in-process ending inventory for all three situations are given below:

Situation 1:
= (1600 units × 1/2) + (2400 units × 1/4)
= 800 units + 600 units
= 1,400 units

Situation 2:
= (12,000 units × 1/2) + (8,000 units × 1/4)
= 6,000 units + 2,000 units
= 8,000 units

Situation 3:
= (6,000 units × 1/2) + (9000 units × 1/3)
= 3,000 units + 3,000 units
= 6,000 units

2. Equivalent production under FIFO method

Computation of equivalent units under FIFO method

*Equivalent units in beginning inventory:

The equivalent units in work-in-process beginning inventory consist of the percentage of work done in the current period. The computations of equivalent units in work-in-process beginning inventory for all three situations are given below:

Situation 1:
There is no beginning inventory in situation 1.

Situation 2:
= 25,000 units × 3/5
= 15,000 units

Situation 3:
= (18,000 units × 2/3) + (12,000 units × 1/2)
= 12,000 units + 6,000 units
= 18,000 units

**Equivalent units in ending inventory:

The equivalent units in work-in-process ending inventory consist of the percentage of work done in the current period. The computations of equivalent units in work-in-process ending inventory for the FIFO method are the same as under the weighted average method.

Situation 1:
= (1600 units × 1/2) + (2400 units × 1/4)
= 800 units + 600 units
= 1,400 units

Situation 2:
= (12,000 units × 1/2) + (8,000 units × 1/4)
= 6,000 units + 2,000 units
= 8,000 units

Situation 3:
= (6,000 units × 1/2) + (9000 units × 1/3)
= 3,000 units + 3,000 units
= 6,000 units

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