Elard Company uses the FIFO method in its process costing system. The first proc

Question

Elard Company uses the FIFO method in its process costing system. The first processing department, the Welding Department, started the month with 14,000 units in its beginning work in process inventory that were 70% complete with respect to conversion costs. The conversion cost in this beginning work in process inventory was $101,140. An additional 64,000 units were started into production during the month. There were 24,000 units in the ending work in process inventory of the Welding Department that were 80% complete with respect to conversion costs. A total of $519,880 in conversion costs were incurred in the department during the month.

The cost per equivalent unit for conversion costs is closest to:

a. $7.79

b. $8.12

c. $8.20

d. $8.45

Explanation / Answer

Beginning work in progress = 14,000 units. These units were 70% complete. It means that balance (100-70) = 30% required conversion. 30% of 14,000 = 4200 units require conversion.

Additional units added into production = 64,000 units. 24,000 units was ending WIP. It means that 64,000 - 24,000 = 40,000 units were fully converted.

24,000 units are 80% complete or converted. Thus equivalent units = 24,000*0.8 = 19,200 units.

equivalent units = 4200 (opening units that required conversion)+40,000 (fully converted)+19,200 (80% completed of ending WIP) = 63,400 units.

Conversion cost = 519,880. (The amount of $101,140 is not considered as it pertains to the past i.e the 70% that has already been converted before this month).

cost per equivalent unit = conversion cost during the month/equivalent units = 519880/63400 = $8.2

So the answer is option "C"

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