Question

KLM company uses the FIFO method to compute equivalent units. It has no beginning work in process; 9,000 units are stated and completed and 3,000 units in ending work in process are 1/3 complete. All material is added at the beginning of the process.

If the total materials cost is $60,000, the unit materials cost is
A. $5.00
B. $6.00
C. $6.67 (rounded)
D. No correct answer given

Answer 1

The company should use Method 3 as it has the lowest total cost.

Step-by-step explanation:

To determine the best production method, we need to calculate the total cost for each method. Method 1 would have a total cost of $7,000 (50 units of labor x $100/unit + 10 units of capital x $400/unit). Method 2 would have a total cost of $8,000 (20 units of labor x $100/unit + 40 units of capital x $400/unit), and Method 3 would have a total cost of $7,000 (10 units of labor x $100/unit + 70 units of capital x $400/unit). Therefore, the company should use Method 3 as it has the lowest total cost.