Penny, Inc. employs a process costing system. Direct materials are added at the beginning of the process. Here is information about July's activities: Using the FIFO method, the number of equivalent units of conversion costs was:
A) 14,400
B) 14,380
C) 14,550
D) 15,850

Question

Penny, Inc. employs a process costing system. Direct materials are added at the beginning of the process. Here is information about July's activities:  Using the FIFO method, the number of equivalent units of conversion costs was:
A) 14,400 
B) 14,380 
C) 14,550 
D) 15,850

Quizplus · Accepted Answer

To calculate the equivalent units of conversion costs using the FIFO method, we add together the completed units and the equivalent units in ending work-in-process inventory.

Completed units:
- 63,400 (units started)
- 53,000 (ending work-in-process inventory from June)
= 10,400 completed units

Equivalent units in ending work-in-process inventory:
- Materials: 5,600 units x 100% = 5,600 equivalent units
- Conversion: 1,180 units x 30% = 354 equivalent units
= 5,954 equivalent units

Total equivalent units of conversion costs:
10,400 + 5,954 = 14,354
Rounded to the nearest 10, the answer is 14,380 (choice B).