Wize University Managerial Accounting Textbook > Process Costing
FIFO Equivalent Units
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First-in, First-out
In the weighted-average method, units are grouped into three categories :
- Beginning WIP Completed
- Started & Completed
- Ending WIP (not complete)
Calculating Equivalent Units
Equivalent units using FIFO represent the portion of the units that were completed in the current period. You must therefore exclude any units that were completed in the previous period.
Beginning WIP Completed
To compute the equivalent units for this category, we multiply physical units by the percentage remaining to complete the units.
Started & Completed
These are the units that were started and finished this period, therefore the equivalent units are 100% of the physical units.
Ending WIP
To find the equivalent units for the unfinished units, simply multiply the physical units by the percentage of completion.
Production Cost Report
Equivalent Units Using the FIFO Method
Direct Materials
To find equivalent units for materials, you must first determine at what point in the process are materials added (this is always given in the question):
- Added at the beginning of the process: This means that all units are 100% complete for direct materials as soon as they are started.
- Added at the end of the process: This means that all units are 0% complete for direct materials until they are finished, when they are finished they become 100% complete for materials.
- Added throughput the process: This means that materials are added progressively throughout the process, equivalent units for materials are based on the percentage of completion.
- Added at x%: This means that all units are 0% complete for direct materials until they reach x%, when they reach x% they become 100% complete for materials.
Conversion Costs
- Indicates how many units have been completed with respect to the direct labor and manufacturing overhead.
- Equivalent units for conversion costs are equal to the physical units multiplied by the percentage of completion.
Transferred-in Costs
- These are costs incurred prior to the units arriving in the current process.
- Units are always treated as being 100% complete as to transferred-in costs.
- In the weighted-average method, equivalent units for transferred-in costs always equal the physical units.Equivalent Units Using the FIFO Method
Example: Equivalent Units
ABC Inc. has 3 stages in its production process: Process A, Process B and Process C. In Process A, 6,000 units were in work in process on July 31st that are 40% complete. During August, an additional 9,000 units were started. On August 31st, 3,000 units are still in process and 15% complete. Direct materials are added at the beginning of the process.
Compute the equivalent units of production for materials and conversion cost.
Started & Completed = Units Started - EWIP
Started & Completed = 9,000 - 3,000 = 6,000
Example: Equivalent Units
ABC Inc. has 3 stages in its production process: Process A, Process B and Process C. In Process A, 6,000 units were in work in process on July 31st that are 40% complete. During August, an additional 9,000 units were started. On August 31st, 3,000 units are still in process and 15% complete. Direct materials are added at the end of the process.
Compute the equivalent units of production for materials and conversion costs.
Materials: (6,000 x 100%) + (6,000 x 100%) + (3,000 x 0%) = 12,000
Conversion: (6,000 x (1-40%)) + (6,000 x 100%) + (3,000 x 15%) = 10,050
Example: Equivalent Units
ABC Inc. has 3 stages in its production process: Process A, Process B and Process C. In Process A, 6,000 units were in work in process on July 31st that are 40% complete. During August, an additional 9,000 units were started. On August 31st, 3,000 units are still in process and 15% complete. Direct materials are added uniformly throughout the process.
Compute the equivalent units of production for materials and conversion costs.
Materials & Conversion: (6,000 x (1-40%)) + (6,000 x 100%) + (3,000 x 15%) = 10,050
Practice: Equivalent Units
Beginning inventory totalled 5,000 units that were 50% complete. 23,000 additional units were transferred-in during the month from the previous process. 12,000 units were completed and transferred out and the remaining units were 40% complete. Use the FIFO method to answer the following questions.
What are the equivalent units for conversion costs?