The cost of production report for August shows conversion costs for 5,000 gallons, 70% complete, to be $2,450. The conversion cost per equivalent unit in July was $0.75. Which of the following best describes the change in the conversion costs between the two months?
A)The conversion costs increased by $0.05 per unit, indicating an improvement.
B)The conversion costs increased by $160 overall, indicating an unfavorable change.
C)The conversion costs decreased by $0.05 per unit, indicating an improvement.
D)The conversion costs decreased by $0.05 per unit, indicating an unfavorable change.

Question

Quizplus · Accepted Answer

To find the conversion cost per equivalent unit for August, divide the total conversion costs by the equivalent units: $2,450 / (5,000 gallons * 70%) = $0.70. Comparing this to July's $0.75, the cost decreased by $0.05 per unit, which generally indicates an improvement in efficiency.

The Cost of Production Report for August Shows Conversion Costs