Sanger Corp.uses a process costing system in which direct materials are added at the beginning of the process and conversion costs are incurred uniformly throughout the process.Beginning inventory for January consisted of 1,000 units that were 40% completed.10,000 units were started into the process during January.On January 31,the inventory consisted of 500 units that were 70% completed.What would be the equivalent units for conversion cost using the FIFO method?
A)10,000
B)10,450
C)10,850
D)11,000

Question

Quizplus · Accepted Answer

To calculate the equivalent units for conversion costs using the FIFO method, we need to calculate the equivalent units for the beginning inventory and the units started and completed during the month separately.

For the beginning inventory:
Equivalent units = Units in inventory * Percentage completion
Equivalent units = 1,000 * 40% = 400

For the units started and completed during January:
Equivalent units = Units started and completed * Percentage completion
Equivalent units = 10,000 * 100% = 10,000

Total equivalent units = Equivalent units for beginning inventory + Equivalent units for the units started and completed during the month
Total equivalent units = 400 + 10,000 = 10,400

However, there are 500 units still in process at the end of January, so we need to also calculate the equivalent units for the ending work-in-process inventory.
Equivalent units for ending inventory = Units in inventory * Percentage completion
Equivalent units for ending inventory = 500 * 70% = 350

Total equivalent units = Total equivalent units for units started and completed during the month + Equivalent units for the ending work-in-process inventory
Total equivalent units = 10,000 + 350 = 10,350

Therefore, the equivalent units for conversion costs using the FIFO method is 10,350, which is closest to choice B (10,450).