During October, Department A started 320,000 units of product in a particular manufacturing process. The beginning work in process inventory was 50,000 units, and the ending inventory was 30,000 units. Direct materials are introduced at the start of processing, and beginning and ending inventories are considered to be 50 percent complete with respect to conversion costs. Department A uses the FIFO costing method. The number of equivalent units for conversion costs was
A) 345,000.
B) 330,000.
C) 360,000.
D) 375,000.

Question

Quizplus · Accepted Answer

To calculate the number of equivalent units for conversion costs, we need to find the equivalent units of production for the units started and the inventory on hand.

For the units started: 
- Direct materials are introduced at the start of processing, so all 320,000 units are started with respect to materials. 
- Beginning work in process is 50% complete with respect to conversion costs, so we need to multiply the percentage of completion by the number of units to get the equivalent units. 50% of 50,000 units is 25,000 equivalent units. 
- Therefore, the total equivalent units for conversion costs for the units started is 320,000 + 25,000 = 345,000.

For the ending inventory: 
- Ending inventory is also 50% complete with respect to conversion costs, so we multiply the percentage of completion by the number of units. 50% of 30,000 units is 15,000 equivalent units.

The total equivalent units for conversion costs is the sum of the equivalent units for the units started and the ending inventory: 345,000 + 15,000 = 360,000.

However, the question asks for the number of equivalent units using the FIFO costing method. This means we assume that the units in ending inventory are from the units started in October, whereas the units completed during the month are from the beginning inventory. Therefore, we need to adjust the equivalent units for the ending inventory to only include the units started in October:

- We started 320,000 units in October, and the ending inventory is 30,000 units. Therefore, the units completed during October are 320,000 - 30,000 = 290,000 units. 
- We assumed that the ending inventory is from the units started in October, so we need to subtract the number of units completed from the ending inventory to get the equivalent units for conversion costs from the October units. 30,000 - 290,000 = -260,000. However, negative equivalent units do not make sense, so we need to set it to zero.

The total equivalent units for conversion costs using FIFO costing is therefore: 345,000 + 0 = 345,000.

Therefore, Choice B (330,000) must be incorrect, as the correct answer is 345,000.

During October, Department a Started 320,000 Units of Product in a Particular