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 cost per equivalent unit for materials used during July was:
A) $10.78
B) $10.33
C) $9.78
D) $10.65

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 cost per equivalent unit for materials used during July was:
A) $10.78 
B) $10.33 
C) $9.78 
D) $10.65

Quizplus · Accepted Answer

To calculate the cost per equivalent unit for the materials used during July using the FIFO method, we add the beginning inventory cost to the cost of materials added during July and divide by the equivalent units of production.

Beginning inventory cost = $6,672
Cost of materials added during July = $141,813
Equivalent units of production= 13,768

Total Material Cost = $6,672 + $141,813 = $148,485

Cost per Equivalent Unit = Total Material Cost / Equivalent Units of production
Cost per Equivalent Unit = $148,485 / 13,768 = $10.78

Answer B is the closest choice to the calculated value of $10.78.