Cloud Nine International uses a process costing system.Assume that direct materials are added at the beginning of the period and that direct labor and overhead are added continuously throughout the process.The company uses the average costing method.The following data are available for one of its accounting periods:
-Equivalent units for direct materials of Cloud Nine International are
A)180,000.
B)206,000.
C)176,000.
D)191,000.

Question

Cloud Nine International uses a process costing system.Assume that direct materials are added at the beginning of the period and that direct labor and overhead are added continuously throughout the process.The company uses the average costing method.The following data are available for one of its accounting periods: 
-Equivalent units for direct materials of Cloud Nine International are
A)180,000. 
B)206,000. 
C)176,000. 
D)191,000.

Quizplus · Accepted Answer

The equivalent units for direct materials are calculated by taking the total units completed and multiplying it by the percentage of completion for direct materials. From the given information, we know that 180,000 units were started and 20,000 units were in ending work in process inventory, for a total of 200,000 units. The percentage of completion for direct materials is 103%, which is calculated as (180,000 units started * 110% completion) + (20,000 units ending inventory * 60% completion). Therefore, the equivalent units for direct materials are 206,000 (200,000 units * 103% completion).

Cloud Nine International Uses a Process Costing System