Arizaga Corporation manufactures canoes in two departments, Fabrication and Waterproofing. In the Fabrication Department, fiberglass panels are attached to a canoe-shaped aluminum frame. The canoes are then transferred to the Waterproofing department to be coated with sealant. Arizaga uses a weighted-average process cost system to collect costs in both departments. All materials in the Fabrication Department are added at the beginning of the production process. On July 1, the Fabrication Department had 320 canoes in process that were 20% complete with respect to conversion cost. On July 31, Fabrication had 540 canoes in process that were 30% complete with respect to conversion cost. During July, the Fabrication Department completed 6,700 canoes and transferred them to the Waterproofing Department.
What are the Fabrication Department's equivalent units related to conversion costs for July?

Question

Quizplus · Accepted Answer

To calculate the equivalent units for conversion costs, we need to consider two things: the units that were started and completed in the current period (i.e. July) and the units that were incomplete at the end of the period.

Units started and completed in July: 
6,700 canoes were completed and transferred, so they are considered 100% complete with respect to conversion costs. Therefore, they contribute 6,700 equivalent units.

Units incomplete at the end of July: 
There were 540 canoes in process at the end of July, which were 30% complete with respect to conversion costs. This means they contribute an additional 540 x 0.3 = 162 equivalent units.

Total equivalent units for conversion costs in Fabrication Department in July:
6,700 + 162 = 6,862, which is answer choice C.

Arizaga Corporation Manufactures Canoes in Two Departments, Fabrication and Waterproofing