Question

During 2010, 57,500 additional units were started into production.

Ending work in process on December 31, 2010, was 7,500 units.
The Beginning Work in Process was 100% complete as to DM and 75% complete as to CC.
The Ending Work in Process was 100% complete as to DM and 50% complete as to CC.
Total DM put into process cost $57,500.
Total CC put into process cost $84,375.
Beginning Work in Process cost $21,250.
All materials are added at the start of the production process, and conversion costs are incurred uniformly throughout manufacturing. A company uses a FIFO process cost system.
Required:
How much is the Cost per Equivalent Unit for Direct Materials costs during 2010?

Answer 1

The Cost per Equivalent Unit for Direct Materials during 2010 is $1.15 per unit. This is calculated by dividing the total DM costs, which is $57,500, by the equivalent units for DM of 50,000 units, since all materials are added at the start of the production process.

Step-by-step explanation:

To calculate the Cost per Equivalent Unit for Direct Materials (DM) costs during 2010 in a FIFO process cost system, we need to consider only the work that was done on the units in the current period. Since all materials are added at the start of the production process, and the Ending Work in Process (EWIP) was 100% complete with respect to DM costs, the equivalent units for DM would simply be the number of units started and completed during the year plus the equivalent units in the EWIP that were not in the Beginning Work in Process (BWIP).

The calculation is as follows:

• Total units to account for: 57,500 units started - 7,500 units in EWIP = 50,000 units completed
• Total DM costs: $57,500
• Equivalent units for DM: 50,000 units (since all materials are added at the start)

Now, we can use the following formula to find the Cost per Equivalent Unit for DM: Cost per Equivalent Unit for DM = Total DM costs / Equivalent units for DM

Therefore, the Cost per Equivalent Unit for DM is $57,500 / 50,000 units = $1.15 per unit.