The Rugger Company uses a process costing system. During the period, 500 units were in beginning inventory, 1,400 were started and 1,000 units were completed and transferred out. The beginning work in process was 20% complete and the ending work in process units were 60% complete. Materials started at the beginning of the process and conversion costs are added evenly throughout production. Beginning WIP had $8,950 of materials costs and $860 of conversion costs. The cost of materials added during the current period amounted to $29,050; the conversion costs added during the current period amounted to $34,560.
-What were the equivalent units of production for conversion costs, using the FIFO method?

Question

The Rugger Company uses a process costing system. During the period, 500 units were in beginning inventory, 1,400 were started and 1,000 units were completed and transferred out. The beginning work in process was 20% complete and the ending work in process units were 60% complete. Materials started at the beginning of the process and conversion costs are added evenly throughout production. Beginning WIP had $8,950 of materials costs and $860 of conversion costs. The cost of materials added during the current period amounted to $29,050; the conversion costs added during the current period amounted to $34,560. 
-What were the equivalent units of production for conversion costs, using the FIFO method?

Quizplus · Accepted Answer

To calculate the equivalent units of production for conversion costs using the FIFO method, we first account for the units completed and transferred out, which were 1,000 units. These units were fully processed during the period, so they count as 1,000 equivalent units for conversion costs. Next, we consider the ending work in process. There were 900 units in ending WIP (1,400 started - 1,000 completed = 400 units remaining; 500 beginning inventory + 400 = 900 units in ending WIP), and these were 60% complete with respect to conversion costs. Thus, the equivalent units for the ending WIP are 540 (900 units * 60%). However, since we are using the FIFO method, we need to adjust for the work done on the beginning inventory. The beginning inventory was 20% complete, and during this period, it was completed, meaning an additional 80% of work was done on those 500 units. Therefore, the equivalent units for the beginning inventory under FIFO are not considered for additional work done during this period since we are focusing on the work done on units started and completed or moved to ending WIP during this period. Hence, the total equivalent units for conversion costs are 1,000 (completed and transferred out) + 540 (for ending WIP) = 1,540. However, considering the FIFO method's focus on work done during the current period, we adjust our calculation to account for the fact that the beginning inventory's completion does not add to the equivalent units since it represents work completed in a prior period. Therefore, the correct calculation, focusing solely on the units started and completed or moved to ending WIP during this period, leads us to reconsider the equivalent units specifically for the work done this period, which correctly accounts for the 1,000 units completed and the 540 units from the ending WIP without additional adjustments for beginning inventory, leading to a reevaluation of the calculation process.

The Rugger Company Uses a Process Costing System