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

Kaveri Foods Ltd. had 500 units of opening WIP in Process A, which were 60% complete for conversion cost. During the month 3,000 units were started. 2,800 units were completed and transferred out, including the opening WIP, and closing WIP is 700 units, 40% complete for conversion cost. Materials are added fully at the start of the process. There is no loss. Using the FIFO method, what are the equivalent units for conversion cost?

Equivalent units for conversion cost under FIFO are 2,780. This is 200 units to finish the opening WIP (40% of 500), plus 2,300 units started and completed, plus 280 units for closing WIP (40% of 700). The opening WIP's earlier 60% completion is excluded.

  1. A2,780Correct
  2. B2,880
  3. C3,080
  4. D2,580

Explanation

Under FIFO, the work done this period on the opening WIP is 500 x 40% = 200 units. Units started and completed = 2,800 - 500 = 2,300. Closing WIP = 700 x 40% = 280. Total = 200 + 2,300 + 280 = 2,780. Using 2,800 + 280 = 3,080 is the weighted average figure, which is wrong here.

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