Exercise 5: Equivalent units, cost per equivalent unit – weighted average method

Learning objective:
This exercise illustrates the computation of equivalent units of production and cost per equivalent unit under the weighted average method.

Fedex Company produces a car care product known as Shine-9, which is a high quality vehicle cleaning liquid. The processing of Shine-9 is completed through three separate departments. The following data pertains to the company’s first processing department:

Information about the cost of work-in-process beginning inventory and the total cost added during the month of May is given below:

Work-in-process inventory on May 1:

• Materials: $28,300
• Conversion cost: $7,450

Cost added during May:

• Materials: $192,500
• Conversion cost: $107,250

Required:

1. Determine the missing figures in the above schedule. (Hint: Compute the equivalent units of production for May for the first department).
2. Compute the cost per equivalent unit for May for the first department of Fedex Company.

Solution

1. Missing figures (i.e., equivalent units of production):

Units transferred to the next department are considered 100% complete with respect to materials and conversion costs. The equivalent units for ending work-in-process inventory have been determined as follows:

Equivalents units in work-in-process ending inventory:
Materials: 20,000 units × 50% = 10,000 units
Conversion: 20,000 units × 25% = 5,000 units

2. Cost per equivalent unit: