Chapter 20, Problem 14QS

To determine

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.

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.
  $Unitsaddedandcompleted100\%=Unitstransferredout–Beginninginventoryunits$

Given,

• Units transferred out = 9,000 units
• Beginning inventory units = 2,000 units

  $\begin{array}{l}Unitsaddedandcompleted100\%=Unitstransferredout–Beginninginventoryunits\hfill \\ Unitsaddedandcompleted100\%=9,000units–2,000units\hfill \\ Unitsaddedandcompleted100\%=7,000units\hfill \end{array}$

Out of total units transferred, 7,000 units were added and completed and transferred out during the process.

Equivalent units of production as FIFO method will be calculated as under −

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 %

  $Equivalentunitsfor\text{ Beginni}nginventory=UnitsinbeginninginventoryX\left(1–percentofcompletion\right)$ Units to be counted from beginning inventory for materials −
  $\begin{array}{l}Equivalentunits=2,000unitsX\left(1–60\%\right)\hfill \\ Equivalentunits=2,000unitsX40\%\hfill \\ Equivalentunits=800units\hfill \end{array}$

Units to be counted from beginning inventory for conversion −
  $\begin{array}{l}Equivalentunits=2,000unitsX\left(1–\text{ 4}0\%\right)\hfill \\ Equivalentunits=2,000unitsX60\%\hfill \\ Equivalentunits=1,200units\hfill \end{array}$

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 %

  $\text{Equivalent units for ending inventory }=UnitsinbeginninginventoryX\text{ Percent of completion}$

Equivalent units for ending inventory for materials −
  $\begin{array}{l}Unitstobecountedascompleted=\text{ 3},000unitsX\text{ 80\%}\hfill \\ Unitstobecountedascompleted=2,400units\hfill \\ \hfill \end{array}$

Equivalent units for ending inventory for conversion −
  $\begin{array}{l}Equivalentunits=\text{ 3},000unitsX\text{ 30 \%}\hfill \\ Equivalentunits=\text{ 9}00units\hfill \\ \hfill \end{array}$

Total equivalent units for production for materials and conversion will be calculated as under −
  $\begin{array}{l}Totalequivalentunitsforproduction=Beginningequivalentunits+Completedandtransferred\\ +Endingequivalentunits\end{array}$

Given,
For materials −

• Beginning equivalent units = 800 units
• Completed and transferred = 7,000 units
• Ending equivalent units = 2,400 units

  $\begin{array}{l}Totalequivalentunitsforproduction=\text{ 800 units + 7,000 units }+\text{ 2,400 units }\\ Totalequivalentunitsforproduction=10,200\text{ units}\end{array}$

For conversion −

• Beginning equivalent units = 1,200 units
• Completed and transferred = 7,000 units
• Ending equivalent units = 900 units

  $\begin{array}{l}Totalequivalentunitsforproduction=\text{ 1,200 units + 7,000 units }+\text{ 2,400 units }\\ Totalequivalentunitsforproduction=\text{ 9},100\text{ units}\end{array}$

Conclusion

Thus, the assembly department's equivalent units of production for materials and for conversion for November using FIFO method have been calculated.