. By reference to the above data, explain the concept of equivalent units in process costing.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Caricolor Limited operates a paint manufacturing plant, housing two distinct departments: the mixing department and the quality control department. The paint undergoes sequential processing in both of these departments.

The company's process-costing system is structured around two primary cost categories: direct materials and conversion costs. Direct materials are introduced at the initial stages of the process, while conversion costs are gradually incurred throughout the process. After completing the mixing department's tasks on the paint, the product is promptly forwarded to the quality control department. Caricolor employs the weighted-average method for process costing to calculate its manufacturing costs.

 

Data for the mixing department for October 2020 are as follows:

                                                                   

                                                                  Physical Units

 

         Cost                                         (Gallons of Paint)              Direct Materials                            Conversion

 

Work in process, October 1x                     16,000                              $2,800,000                                 $ 901,400 

 

Started during October 2020                     44,000

 

Completed during October 2020                51,000

Work in process, October 31y                      9,000

 

Total costs added during October 2020                                 $9,400,000                                    $5,111,000                                                                                                                                                                              

 

x Degree of completion: direct materials, 100%; conversion costs, 60%.

y Degree of completion: direct materials, 100%; conversion costs, 70%.

 

Questions:

4. By reference to the above data, explain the concept of equivalent units in process costing.

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