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Gholson, Inc. 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 $1,250. The current period's direct material costs total $31,500. The company began the period with 500 units, 70% complete, started 10,500 units, and finished the period with 1,000 units, 40% complete.
-Using a FIFO system, the direct material cost per equivalent unit is
A) $3.00
B) $2.98
C) $3.20
D) $2.55

Question

Quizplus · Accepted Answer

The direct material cost per equivalent unit is calculated by dividing the total direct material costs by the total equivalent units. The total equivalent units are calculated by adding the equivalent units from the beginning work in process to the equivalent units from the current period's production. The equivalent units from the beginning work in process are calculated by multiplying the number of units in the beginning work in process by the percentage of completion. The equivalent units from the current period's production are calculated by multiplying the number of units started by the percentage of completion. In this case, the total equivalent units are 10,500 + (500 * 70%) = 11,000. The direct material cost per equivalent unit is $31,500 + $1,250 / 11,000 = $3.00.

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