Question

Heathcoat Co. uses process costing to account for the production of canned vegetables. Direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process. Beginning inventory consisted of $7,000 in materials and $4,000 in conversion costs. April costs were $36,000 for materials and $40,000 for conversion costs. On April 1, there were 2,000 units in beginning inventory (80% complete). During April 10,000 units were completed. Ending in process inventory was 4,000 units (100% complete for materials, 40% for conversion). The cost per equivalent unit for materials using the FIFO method would be closest to:

Answer 1

We can solve for the cost per equivalent unit for materials by using the formula:

Cost per equivalent unit = (Beg. work in Process Costs + Costs added this period) / (Units completed this period + Units in Ending Work in Process)

From the given problem, we are given the values for the materials:

Beg. work in Process Costs = $7,000

Costs added this period = $36,000

Units completed this period = 10,000 units

Units in Ending Work in Process = 4,000 units

Therefore:

Cost per equivalent unit = (7000 + 36000) / (14000)

Cost per equivalent unit = $3.07

Therefore the cost per equivalent unit is about $3 under FIFO method.