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Exercise 5S-1 Computation of Equivalent Units of Production-FIFO Method [LO5S-6]Clonex Labs, Inc., uses the FIFO method in its process costing system. The following data are available for one department for October: Percent Completed UnitsMaterialsConversionWork in process, October 130,00065%30%Work in process, October 3115,00080%40% The department started 175,000 units into production during the month and transferred 190,000 completed units to the next department. Required:Compute the equivalent units of production for materials and conversion for October.

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Answer:

Equivalent units of materials           197,500

Equivalent units of conversion          202,000

Explanation:

Fully work represent units started and completed in the same period. They exclude the opening inventory.

Fully worked = 190,000- 15,000 =175,000.

Note also at that the degree of completion for opening inventory is the simply the balance of work remaining to be done.

For example, for materials, 65% of work has been done on the opening inventory in the last period, hence the balance of 35% would be done this period

Items                    Units                                           Equivalent unit

Opening WIP      30,000        30,000 ×  35% =    10500

Fully worked       175 ,000        175 ,000 ×  100%=  175,000

Closing inventory  15,000        15,000 ×   80%=    12000

Equivalent unit of materials                                     197,500

Conversion cost

Opening WIP      30,000        30,000 ×  70%  =        21000

Fully worked       175 ,000        175 ,000 ×  100%=     175,000

Closing inventory  15,000        15,000 ×   40%=       6000

Equivalent unit of conversion                                     202,000