Rally Gifts uses process costing. In its Forming Department, all the materials are added at the beginning of processing. At the end of the year, 6,000 units remain in Work in Process inventory in the department. During the year, 54,000 units were completed and transferred out and 55,000 units were started. How many equivalent units will be used in the cost per equivalent unit calculation for material costs?

Question

Quizplus · Accepted Answer

In process costing, equivalent units are calculated based on the percentage of completion of units in the beginning inventory and those started and completed during the period. Since all materials are added at the beginning of processing, the 6,000 units in the Work in Process inventory at the end of the year are 100% complete for materials. Thus, the equivalent units for material costs would be 54,000 units completed + 6,000 units in ending inventory = 60,000 equivalent units. Therefore, the correct answer is C.

Rally Gifts Uses Process Costing