Byrd Manufacturing decided to analyze certain costs for June of the current year. Units started into production equaled 14,000 and ending work in process equaled 2,000 units. With no beginning work in process inventory, how much is the conversion cost per unit if ending work in process was 25% complete and total conversion costs equaled $70,000?
A) $4.38.
B) $17.50.
C) $5.60.
D) $2.80.

Question

Quizplus · Accepted Answer

We can use the formula for computing conversion costs:

Total Conversion Costs = Direct Labor Costs + Manufacturing Overhead Costs

We can rearrange the formula to solve for the conversion cost per unit:

Conversion Cost per Unit = Total Conversion Costs / Units Completed and Transferred Out

To use this formula, we need to determine how many units were completed and transferred out during the month. This can be computed by subtracting the ending work in process (2,000 units) from the units started into production (14,000 units) to get 12,000 units.

Now we can use the formula:

Conversion Cost per Unit = $70,000 / 12,000 units
Conversion Cost per Unit = $5.833

However, the ending work in process was only 25% complete, so we need to adjust for this. We can multiply the ending work in process (2,000 units) by the percentage completed (25%) to get equivalent units of production:

Equivalent Units of Production = Ending Work in Process x Percentage Completed
Equivalent Units of Production = 2,000 units x 25%
Equivalent Units of Production = 500 units

We can add the equivalent units of production to the units completed and transferred out to get the total equivalent units:

Total Equivalent Units = Units Completed and Transferred Out + Equivalent Units of Production
Total Equivalent Units = 12,000 units + 500 units
Total Equivalent Units = 12,500 units

Now we can compute the conversion cost per unit:

Conversion Cost per Unit = $70,000 / 12,500 units
Conversion Cost per Unit = $5.60

Therefore, the answer is (C) $5.60.

Byrd Manufacturing Decided to Analyze Certain Costs for June of the Current