V produces various inks at its factory. Production details for Process 1 are as follows:
Opening work-in-progress, 1 April 400 units 60% complete
Closing work-in-progress, 30 April 600 units 20% complete
Units started 1,000
Units finished 800
The degree of completion quoted relates to labour and overhead costs. Three-quarters of the materials are added at the start of the process and the remaining quarter added when the process is 50% complete. The company uses the FIFO method of cost allocation.
What are the equivalent units of production for materials in the period?
Answer:
Materials
equivalent
units
Opening inventory completed (400 × 0%) 0
Units started and finished in the period (800 – 400) 400
Closing inventory (600 × 75%) 450
––––
Total equivalent units produced in the period 850
––––
How closing inventory units are valued?
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Equivalent units
6y ago#175% of the materials are added when the units are started, and the other 25% is only added when the units are 50% complete.
The closing inventory is only 20% complete and therefore will only have 75% of the materials (the other 25% will not have been added).
Therefore the equivalent units for materials for the closing WIP are 75% x 600.
As far the valuation of the closing WIP is concerned, the question does not ask for them to be valued (and it would be impossible anyway because no costs have been given).
Thank you very much, Mr. Moffat.
Just passed FMA. Have a Blessed New Year.?
6y ago#3You are welcome, and many congratulations on passing the exam - I am very pleased for you :-)
Happy New Year to you also!
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