Exercises 14: Equivalent units in process costing
Learning objective:
This exercise illustrates how the computations of equivalent units differ between the weighted average and the FIFO method.
Exercises 14 (a): equivalent units in process costing – weighted average vs FIFO:
On April 1, 2020, Proton Company had 40,000 units in its work-in-process inventory, 100% complete with respect to materials and 20% complete with respect to conversion cost. During April, 320,000 units were started in Department X. 340,000 units were transferred to Department Y during the month. On April 30, 2020, the company had 20,000 units in its work-in-process inventory, 100% complete as to materials and 40% complete as to conversion cost.
Required: Compute the equivalent units of production for Department X, assuming Proton uses:
- a weighted average method
- a FIFO method
Solution
1. If Proton Company uses a weighted average method:
![Equivalent units - weighted average method Equivalent units - weighted average method](https://www.accountingformanagement.org/wp-content/uploads/2020/02/problem-1-pcs-img0.png)
2. If Proton Company uses a FIFO method:
![Equivalent units - FIFO method Equivalent units - FIFO method](https://www.accountingformanagement.org/wp-content/uploads/2020/02/problem-1-pcs-img0.1.png)
Exercise 14 (b): equivalent units in process costing – weighted average:
Galaxy Inc. produces a single product known as product T-9. To account for the production costs of product T-9, the company uses a proper process costing system. Galaxy has three processing departments – Department K, Department L, and Department M. The raw materials are put into process in department K, where they are partially processed and transferred to department L for further work. Packaging is done in department M, after which the finished products are moved to the finished goods storeroom area.
The following inventory of product T-9 is on hand at the end of December 31, 2020:
Department K:
- Number of units: 600 units
- Stage of completion: raw materials 1/3 complete; direct labor 1/2 complete
Department L:
- Number of units: 2,000
- Stage of completion: direct labor 2/5 complete
Department M:
- Number of units: 200
- Stage of completion: Packaging materials 3/4 complete; direct labor 1/4 complete
Finished goods:
- 800 units
There was no inventory of unused raw materials and packaging materials as of December 31, 2020.
Required:
- Compute the equivalent units for raw materials in all inventories on December 31, 2020.
- Compute the equivalent units for Department K’s direct labor in all inventories on December 31, 2020.
- Compute equivalent units for packaging materials in all inventories on December 31, 2020.
Solution
1. Equivalent units for raw materials in all inventories – December 31, 2020:
![Equivalent units for raw materials Equivalent units for raw materials](https://www.accountingformanagement.org/wp-content/uploads/2020/02/problem-1-pcs-img1.png)
2. Equivalent units for department K’s direct labor in all inventories – December 31, 2020:
![Equivalent units for department K's direct labor in all inventories Equivalent units for department K's direct labor in all inventories](https://www.accountingformanagement.org/wp-content/uploads/2020/02/problem-1-pcs-img2.png)
3. Equivalent units for packaging materials in all inventories – December 31, 2020:
![Equivalent units for packaging materials in all inventories Equivalent units for packaging materials in all inventories](https://www.accountingformanagement.org/wp-content/uploads/2020/02/problem-1-pcs-img3.png)
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