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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

In a process, opening WIP is 1,000 units (materials 100% complete, conversion 40% complete). During the month 9,000 units are introduced. 8,500 units, including the opening WIP, are completed and transferred out. Closing WIP is 1,500 units (materials 100%, conversion 60% complete). There is no process loss. Under the FIFO method, what are the equivalent units for conversion cost?

The FIFO equivalent units for conversion are 9,000. They consist of 600 units to finish the opening WIP (60% of 1,000), 7,500 units started and finished, and 900 units in closing WIP (60% of 1,500). Weighted average would give 9,400, which includes earlier-period work.

  1. A9,000 unitsCorrect
  2. B9,400 units
  3. C8,800 units
  4. D10,000 units

Explanation

Under FIFO: work to complete opening WIP = 1,000 x 60% = 600; units started and finished = 8,500 - 1,000 = 7,500; closing WIP = 1,500 x 60% = 900. Total = 600 + 7,500 + 900 = 9,000. The figure 9,400 is the weighted average result (8,500 + 900), which wrongly counts the work already done on opening WIP in the previous period.

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