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 FIFO method, we need to determine the equivalent units of partially completed units in the beginning inventory and the units started and completed during the period.

Equivalent units of beginning inventory: 
100% complete for materials and 70% complete for conversion costs, so
5,000 x 0.70 = 3,500 equivalent units of conversion costs

Equivalent units of units started and completed during the period:
15,000 units x 100% = 15,000 equivalent units of conversion costs

Equivalent units of ending inventory:
20% complete for conversion costs, so
500 x 0.20 = 100 equivalent units of conversion costs

Total equivalent units of conversion costs:
3,500 + 15,000 + 100 = 18,600 equivalent units
However, since the question is asking for the FIFO method, we need to use the 14,500 equivalent units of conversion costs for the units completed first (the beginning inventory + the first 14,500 units started and completed during the period).

So the correct answer is 14,500 or B.