Exercise 5: Equivalent units, cost per equivalent unit – weighted average method

The Fedex Company produces a car care product known as Shine-9 which is a high quality vehicle cleaning liquid. The processing of Shine-9 is completed through three separate departments. The following data pertains to the company’s first processing department:

The information about the cost in work in process beginning inventory and the total cost added during the month of May is given below:

Work in process inventory on May 1:

• Materials: $28,300
• Conversion cost: $7,450

Cost added during May:

• Materials: $192,500
• Conversion cost: $107,250

Required:

1. Determine the missing figures in the above schedule
   (Hint: Compute equivalent units of production for May for the first department).
2. Compute cost per equivalent unit for May for the first department of Fedex Company.

Solution

1. Missing figures (i.e., equivalent units of production):

Units transferred to next department are considered 100% complete with respect to materials and conversion cost. The equivalent units in ending work in process inventory have been determined as follows:

Equivalents units in work in process ending inventory:
Materials: 20,000 units × 50% = 10,000 units
Conversion: 20,000 units × 25% = 5,000 units

2. Cost per equivalent unit: