
Concept explainers
Introduction:
In
1. To Calculate:
Our objective is to calculate Equivalent units of production with respect to direct material and conversion.

Answer to Problem 2APSA
Solution:
Based on Explanation given below:
Equivalent units for Direct Material are 880000 Units and
Equivalent units for conversion are 754000.
Explanation of Solution
Victory Company | |||||
Direct Material | |||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60000 | 100% | 60000 | 420000 | |
Introduced during the month | 820000 | 2220000 | |||
Total | 880000 | 880000 | 2640000 | 3 | |
Completed - Opening | 60000 | 100% | 60000 | 180000 | |
Started and Completed | 640000 | 100% | 640000 | 1920000 | |
Closing | 180000 | 100% | 180000 | 540000 | |
Conversion | Total Material + Conversion | ||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60000 | 80% | 139000 | 559000 | |
Introduced during the month | 820000 | 3254000 | 5474000 | ||
Total | 880000 | 754000 | 3393000 | 6033000 | |
Completed - Opening | 60000 | 100% | 60000 | 270000 | 450000 |
Started and Completed | 640000 | 100% | 640000 | 2880000 | 4800000 |
Closing | 180000 | 30% | 54000 | 243000 | 783000 |
Equivalent units with respect to Direct Material are 880000 units and for Conversion are 754000 units.
Introduction:
In Process Costing we treat all units produced as having uniform cost of production based on their stage of completion. There is distinction being maintained in FIFO Basis and Weighted average basis by treatment of opening stock of WIP. In case of FIFO – opening WIP is considered based on its completion percentage while in Weighted average method – stage of completion of opening WIP units is ignored.
2. To Calculate:
Our objective is to calculate Direct Material cost and conversion cost per Equivalent units of production.

Answer to Problem 2APSA
Solution:
Based on Explanation given below:
Direct Material cost per Equivalent units is $ 3 and
Conversion cost per Equivalent unit is $ 4.5
Explanation of Solution
Victory Company | |||||
Direct Material | |||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60000 | 100% | 60000 | 420000 | |
Introduced during the month | 820000 | 2220000 | |||
Total | 880000 | 880000 | 2640000 | 3 | |
Completed - Opening | 60000 | 100% | 60000 | 180000 | |
Started and Completed | 640000 | 100% | 640000 | 1920000 | |
Closing | 180000 | 100% | 180000 | 540000 | |
Conversion | Total Material + Conversion | ||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60000 | 80% | 139000 | 559000 | |
Introduced during the month | 820000 | 3254000 | 5474000 | ||
Total | 880000 | 754000 | 3393000 | 6033000 | |
Completed - Opening | 60000 | 100% | 60000 | 270000 | 450000 |
Started and Completed | 640000 | 100% | 640000 | 2880000 | 4800000 |
Closing | 180000 | 30% | 54000 | 243000 | 783000 |
Direct Material cost per Equivalent unit = 2640000/880000 = $ 3
Conversion Cost per Equivalent unit = 3393000/754000 = $ 4.5
Direct Material Cost per Equivalent unit is $ 3 and Conversion cost per Equivalent unit is $ 4.5
Introduction:
In Process Costing we treat all units produced as having uniform cost of production based on their stage of completion. There is distinction being maintained in FIFO Basis and Weighted average basis by treatment of opening stock of WIP. In case of FIFO – opening WIP is considered based on its completion percentage while in Weighted average method – stage of completion of opening WIP units is ignored.
3. To Calculate:
Our objective is to compute the Direct Material Cost and conversion cost assigned to
- Units completed and Transferred out
- Ending WIP units.

Answer to Problem 2APSA
Solution:
Based on Explanation given below:
Direct Material cost assigned to units completed and transferred out is $ 2,100,000.
Direct Material Cost Assigned to WIP Units is $ 540,000
Conversion Cost Assigned to units completed and transferred out is $ 3,150,000.
Conversion cost assigned to WIP units is $ 243,000.
Explanation of Solution
Victory Company | |||||
Direct Material | |||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60000 | 100% | 60000 | 420000 | |
Introduced during the month | 820000 | 2220000 | |||
Total | 880000 | 880000 | 2640000 | 3 | |
Completed - Opening | 60000 | 100% | 60000 | 180000 | |
Started and Completed | 640000 | 100% | 640000 | 1920000 | |
Closing | 180000 | 100% | 180000 | 540000 | |
Conversion | Total Material + Conversion | ||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60000 | 80% | 139000 | 559000 | |
Introduced during the month | 820000 | 3254000 | 5474000 | ||
Total | 880000 | 754000 | 3393000 | 6033000 | |
Completed - Opening | 60000 | 100% | 60000 | 270000 | 450000 |
Started and Completed | 640000 | 100% | 640000 | 2880000 | 4800000 |
Closing | 180000 | 30% | 54000 | 243000 | 783000 |
Direct Material cost assigned to units completed and transferred = $ 180000+1,920,000.00= $2,100,000
Conversion cost assigned to units completed and transferred = $ 270,000+ $2,880,000 = $3,150,000
Type of cost | Units completed and transferred | WIP Units |
Direct Material | $2100000 | $540000 |
Conversion | $ 3150000 | $243000 |
Introduction:
In Process Costing we treat all units produced as having uniform cost of production based on their stage of completion. There is distinction being maintained in FIFO Basis and Weighted average basis by treatment of opening stock of WIP. In case of FIFO – opening WIP is considered based on its completion percentage while in Weighted average method – stage of completion of opening WIP units is ignored.
To Calculate:
The Closing units are 60% complete with Labour in place of 30%. Determine its impact on Nov Financial Statements.

Answer to Problem 2APSA
Solution:
Because of the error – conversion Equivalent units changed from 754000 units to 808000 units. The per unit cost of conversion of equivalent units should be $ 4.2 in place of $4.5 reported earlier. The costs of units completed and transferred was reported higher by $ 210520 and Work in Progress units were stated at lower value of $ 783000 in place of $ 993,520.
Explanation of Solution
Victory Company | |||||
Direct Material | |||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60,000 | 100% | 60,000 | 420,000 | |
Introduced during the month | 820,000 | 2,220,000 | |||
Total | 880,000 | 880,000 | 2,640,000 | 3 | |
Completed - Opening | 60,000 | 100% | 60,000 | 180,000 | |
Started and Completed | 640,000 | 100% | 640,000 | 1,920,000 | |
Closing | 180,000 | 100% | 180,000 | 540,000 | |
Conversion | Total Material + Conversion | ||||
No of Units | % complete | Equivalent Units | Cost | ||
Opening WIP Units | 60,000 | 80% | 139,000 | 559,000 | |
Introduced during the month | 820,000 | 3,254,000 | 5,474,000 | ||
Total | 880,000 | 808,000 | 3,393,000 | 6,033,000 | |
Completed - Opening | 60,000 | 100% | 60,000 | 251,955 | 431,955 |
Started and Completed | 640,000 | 100% | 640,000 | 2,687,525 | 4,607,525 |
Closing | 180,000 | 60% | 108,000 | 453,520 | 993,520 |
Impact of wrong estimation of degree of completion in conversion charges in Closing Work In Progress is calculated as under:
Impact on Conversion Cost | EARLIER | Now | Difference | |
No of Equivalent units | 754,000 | 808,000 | 54,000 | |
Cost of Units completed and transferred | $ | $ | $ | |
Opening Units | 270,000 | 251,955 | (18,045) | |
Started and Completed | 2,880,000 | 2,687,525 | (192,475) | |
Closing WIP | 243,000 | 453,520 | 210,520 |
Note for Plant manager:
The Plant Manager
Victory Company
Hi
It has come to our notice that Work in progress units were erroneously reported as 30% complete for conversion cost in place of them to be 60% complete. In view of the error – our units Equivalent units calculation was short reported by 54000 units. This further resulted in higher per unit cost of each equivalent unit cost of conversion to $ 4.5 in place of $ 4.2. As a result our cost of Units completed and transferred were reported at higher cost by $ 210520 lowering the profitability of November Month by $ 210520. The closing Work in Progress value was under reported by $ 210520 and therefore our aggregate Current Asset was also under reported by $ 210520. We have summarized the impact in following table:
Impact on Conversion Cost | EARLIER | Now | Difference | |
No of Equivalent units | 754,000 | 808,000 | 54,000 | |
Cost of Units completed and transferred | $ | $ | $ | |
Opening Units | 270,000 | 251,955 | (18,045) | |
Started and Completed | 2,880,000 | 2,687,525 | (192,475) | |
Closing WIP | 243,000 | 453,520 | 210,520 |
Nov Profitability should be higher by $ 210520 and Nov Current Assets would be higher by $ 210520.
We should take strict measures so that these errors are not repeated in future and cost estimates submitted to Accounts and Finance department are accurate to ensure correct information and reports to all concerned.
Thanks
Vijay Gupta
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