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Concept explainers
Concept Introduction:
Equivalent Units of Production:
The equivalent units of production can be defined as the units which are partially completed to be counted as fully completed units based on their percentage of work done on them.
For example, the units in ending inventory are 1,000 units and 60 % completed. Thus, the equivalent units for ending inventory will be = 1,000 units X 60 % = 600 units.
First-in, first-out (FIFO):
In FIFO method of inventory, the cost of goods sold and ending inventory are valued at the older prices. The cost of goods sold are valued at the older prices and the inventory which remains unsold are with the newest prices. This method says that, the inventory first purchased is first sold the ending inventory consists of the latest purchases.
To calculate:
The assembly department’s equivalent units of production for materials and for conversion for November using FIFO method.
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Answer to Problem 14QS
Solution:
Equivalent units of Production for November | ||
Materials | Conversion | |
Equivalent Units | 10,200 units | 9,100 units |
Explanation of Solution
The equivalent units of production for Materials and Conversion for can be calculated as under –
First, units added and completed 100 % from the process will be calculated.
Given,
• Units transferred out = 9,000 units
• Beginning inventory units = 2,000 units
Out of total units transferred, 7,000 units were added and completed and transferred out during the process.
Equivalent
Equivalent units of production -FIFO | ||
Direct Materials | Conversion | |
Units to complete - Beginning Inventory | ||
Direct Materials (2,000 X 40%) | 800 | |
Conversion (2,000 X 60 %) | 1,200 | |
Units completed and transferred out | 7,000 | 7,000 |
Units completed - Ending Inventory | ||
Direct Materials (3,000 X 80%) | 2,400 | |
Conversion (3,000 X 30%) | 900 | |
Equivalent units of production | 10,200 | 9,100 |
The above calculations can be explained as under –
For beginning inventory –
Given,
• Units in beginning inventory = 2,000 units
• For direct material completed percentage = 60 %
• For conversion completed percentage = 40 %
Units to be counted from beginning inventory for materials –
Units to be counted from beginning inventory for conversion –
For units added, completed and transferred out –
7,000 units calculated as above
For ending inventory –
Given,
• Units in ending inventory = 3,000 units
• For direct material completed percentage = 80 %
• For conversion completed percentage = 30 %
Equivalent units for ending inventory for materials –
Equivalent units for ending inventory for conversion –
Total equivalent units for production for materials and conversion will be calculated as under –
Given,
For materials –
• Beginning equivalent units = 800 units
• Completed and transferred = 7,000 units
• Ending equivalent units = 2,400 units
For conversion –
• Beginning equivalent units = 1,200 units
• Completed and transferred = 7,000 units
• Ending equivalent units = 900 units
Thus, the assembly department’s equivalent units of production for materials and for conversion for November using FIFO method have been calculated.
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Chapter 20 Solutions
Loose Leaf for Fundamental Accounting Principles
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