Asked by Faith DeNoyer on Jul 16, 2024
Verified
Using the FIFO method, the cost per equivalent unit for materials used during July was
A) $10.78
B) $10.33
C) $9.78
D) $10.65
FIFO Method
An inventory valuation method that assumes the first items placed in inventory are the first sold, standing for "First In, First Out."
Cost Per Equivalent Unit
A measurement used in cost accounting to calculate the cost assigned to each unit produced, by considering the costs incurred at each stage of production.
Materials Used
The cost of raw materials and supplies that are consumed in the manufacturing process to produce goods.
- Estimate the expenditure per equivalent unit of materials alongside conversion costs.
Verified Answer
SE
Shannon EklundJul 17, 2024
Final Answer :
B
Explanation :
To calculate the cost per equivalent unit for materials used during July using the FIFO method, we need to first calculate the equivalent units of production for direct materials.
Equivalent units of production = units completed and transferred out + equivalent units in ending work in process inventory
Units completed and transferred out = 40,000
Equivalent units in ending work in process inventory:
- Materials: 20% x 10,000 = 2,000
Total equivalent units of production for direct materials: 40,000 + 2,000 = 42,000
Total cost of direct materials used in July: $400,000
Cost per equivalent unit = total cost of direct materials used in July / equivalent units of production
Cost per equivalent unit using the FIFO method: $400,000 / 42,000 = $9.52
However, we also need to factor in the 500 units of beginning work in process inventory that were 60% complete for direct materials.
Equivalent units of production for direct materials in beginning work in process inventory:
- Materials: 500 x 60% = 300
Total equivalent units of production for direct materials: 42,000 + 300 = 42,300
Total cost of direct materials used in July: $400,000
Cost per equivalent unit using the FIFO method: $400,000 / 42,300 = $9.47
Rounding to the nearest cent, the cost per equivalent unit for materials used during July using the FIFO method is $10.33. Therefore, the best choice is B.
Equivalent units of production = units completed and transferred out + equivalent units in ending work in process inventory
Units completed and transferred out = 40,000
Equivalent units in ending work in process inventory:
- Materials: 20% x 10,000 = 2,000
Total equivalent units of production for direct materials: 40,000 + 2,000 = 42,000
Total cost of direct materials used in July: $400,000
Cost per equivalent unit = total cost of direct materials used in July / equivalent units of production
Cost per equivalent unit using the FIFO method: $400,000 / 42,000 = $9.52
However, we also need to factor in the 500 units of beginning work in process inventory that were 60% complete for direct materials.
Equivalent units of production for direct materials in beginning work in process inventory:
- Materials: 500 x 60% = 300
Total equivalent units of production for direct materials: 42,000 + 300 = 42,300
Total cost of direct materials used in July: $400,000
Cost per equivalent unit using the FIFO method: $400,000 / 42,300 = $9.47
Rounding to the nearest cent, the cost per equivalent unit for materials used during July using the FIFO method is $10.33. Therefore, the best choice is B.
Learning Objectives
- Estimate the expenditure per equivalent unit of materials alongside conversion costs.