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

In a process, opening WIP is 2,000 units (100% material, 60% conversion complete). 8,000 units are introduced and 7,000 units are completed and transferred out. Closing WIP is 3,000 units (100% material, 40% conversion 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 7,000. This is 800 to finish opening WIP, 5,000 started and completed, and 1,200 for closing WIP. The 8,200 weighted average figure is wrong here because FIFO excludes work done in the previous period.

  1. A6,200 units
  2. B7,000 unitsCorrect
  3. C7,800 units
  4. D8,200 units

Explanation

Under FIFO, equivalent units for conversion are: opening WIP completion 2,000 x 40% = 800; started and completed 7,000 - 2,000 = 5,000; closing WIP 3,000 x 40% = 1,200. Total = 800 + 5,000 + 1,200 = 7,000. The figure of 8,200 is the weighted average result, which includes the work already done on opening WIP.

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