Exercises 14: Equivalent units in process costing

Learning objective:
This exercise illustrates how the computations of equivalent units differ between the weighted average and the FIFO method.

Exercises 14 (a): equivalent units in process costing – weighted average vs FIFO:

On April 1, 2020, Proton Company had 40,000 units in its work-in-process inventory, 100% complete with respect to materials and 20% complete with respect to conversion cost. During April, 320,000 units were started in Department X. 340,000 units were transferred to Department Y during the month. On April 30, 2020, the company had 20,000 units in its work-in-process inventory, 100% complete as to materials and 40% complete as to conversion cost.

Required: Compute the equivalent units of production for Department X, assuming Proton uses:

1. a weighted average method
2. a FIFO method

Solution

1. If Proton Company uses a weighted average method:

2. If Proton Company uses a FIFO method:

Exercise 14 (b): equivalent units in process costing – weighted average:

Galaxy Inc. produces a single product known as product T-9. To account for the production costs of product T-9, the company uses a proper process costing system. Galaxy has three processing departments – Department K, Department L, and Department M. The raw materials are put into process in department K, where they are partially processed and transferred to department L for further work. Packaging is done in department M, after which the finished products are moved to the finished goods storeroom area.

The following inventory of product T-9 is on hand at the end of December 31, 2020:

Department K:

• Number of units: 600 units
• Stage of completion: raw materials 1/3 complete; direct labor 1/2 complete

Department L:

• Number of units: 2,000
• Stage of completion: direct labor 2/5 complete

Department M:

• Number of units: 200
• Stage of completion: Packaging materials 3/4 complete; direct labor 1/4 complete

Finished goods:

• 800 units

There was no inventory of unused raw materials and packaging materials as of December 31, 2020.

Required:

1. Compute the equivalent units for raw materials in all inventories on December 31, 2020.
2. Compute the equivalent units for Department K’s direct labor in all inventories on December 31, 2020.
3. Compute equivalent units for packaging materials in all inventories on December 31, 2020.

Solution

1. Equivalent units for raw materials in all inventories – December 31, 2020:

2. Equivalent units for department K’s direct labor in all inventories – December 31, 2020:

3. Equivalent units for packaging materials in all inventories – December 31, 2020: