Aniston Enterprises manufactures stylish hats for sophisticated women. All materials are introduced at the beginning of the manufacturing process in the Cutting Department. Conversion costs are incurred uniformly throughout the manufacturing process. As the cutting of material is completed, the pieces are immediately transferred to the Sewing Department. Information for the Cutting Department for the month of May follows. Goods in Process, May 1 (50,000 units, 100% complete for direct materials, 40% complete with respect to direct labor and overhead (conversion costs); includes $70,500 of direct material cost; $34,050 of conversion costs).
Goods in Process, May 31 (75,000 units, 100% complete for direct materials; 20% complete for conversion costs).
If Aniston Enterprises uses the FIFO method of process costing, compute the cost per equivalent unit for direct materials and conversion costs respectively for May.

Question

Quizplus · Accepted Answer

The FIFO method of process costing assumes that the costs of the first units started in production are the first costs assigned to the units completed and transferred out during the period. The equivalent units of production for direct materials are 125,000 (50,000 units from beginning work in process + 75,000 units started and completed during the month). The equivalent units of production for conversion costs are 90,000 (50,000 units from beginning work in process + 40,000 units started and completed during the month). The cost per equivalent unit for direct materials is $1.52 ($187,500 / 125,000 units). The cost per equivalent unit for conversion costs is $1.81 ($162,900 / 90,000 units).

Aniston Enterprises Manufactures Stylish Hats for Sophisticated Women