Tres Dieci Ltd employs a process costing system in which direct materials are added at the beginning of the process. Direct material costs from the prior period for beginning work in process are $6,000. The current period's direct material costs total $60,000. The company began the period with 500 units, 60% complete, started 10,500 units, and finished the period with 1,000 units, 50% complete. Using a FIFO system, the direct material cost per equivalent unit is:

Question

Quizplus · Accepted Answer

Under the FIFO method, the costs from the prior period are not included in the calculation of the cost per equivalent unit for the current period. Therefore, only the current period's direct material costs of $60,000 are considered. The equivalent units for direct materials, given that materials are added at the beginning of the process, would be the total units started and completed during the period plus the equivalent units in ending inventory. Since all materials are added at the beginning, the equivalent units for materials would be the total units started (10,500) plus the ending inventory (1,000 units, but since they are 100% complete for materials as they are added at the beginning, we count all 1,000). Thus, the equivalent units for materials are 10,500 + 1,000 = 11,500. The cost per equivalent unit for materials is $60,000 / 11,500 = $5.217, which is not an option provided, indicating a need to reassess the calculation considering the specific details provided in the question. Given the error in the initial explanation, the correct approach is to calculate the equivalent units considering the FIFO method correctly. The beginning inventory is irrelevant for the calculation of new work. The calculation should focus on the work done in the current period: 10,500 units started and completed plus the work to complete the beginning inventory and the work done on the ending inventory. However, since materials are added at the beginning, for FIFO, we only consider the materials added to the units started this period, which simplifies to the current period's direct material costs divided by the units started and partially completed during the period. The correct calculation involves accurately determining the equivalent units for materials considering the FIFO approach, which accounts for the units completed and the ending work in process, correctly applying the percentage completion for materials if necessary, and dividing the current period's costs by these equivalent units. The mistake in the initial explanation was not correctly applying the FIFO method principles and the specific details regarding the addition of materials and the state of completion of units.

Tres Dieci Ltd Employs a Process Costing System in Which