Matrix Inc. calculates cost for an equivalent unit of production using both the weighted-average and the FIFO methods. Data for July:
Work-in-process inventory, July 1 (36,000 units):
Direct materials (100% completed) $122,400
Conversion (50% completed) 76,800
Balance in work in process inventory, July 1 $199,200
Units started during July 90,000
Units completed and transferred 102,000
Work-in-process inventory, July 31:
Direct materials (100% completed) 24,000
Conversion (50% completed)
Cost incurred during July:
Direct materials $180,000
Conversion costs 288,000
Cost per equivalent unit for conversion under the FIFO method is calculated to be:
(please provide step by step solution for further understanding)
a) $2.40.
b) $3.20.
c) $3.00.
d) $3.10.
e) $2.00.

c) $3.00

Explanation:

The FIFO method assumes that the cost of the Beginning Work In Process will automatically go towards the completed units, because the units that were incomplete for the previous period are the first to be completed in the current period. Thus, we are only interested in the current costs instead of getting a weighted average (combining the cost of last year in beginning inventory and the cost of the current period).

Step 1

Calculate the equivalent units

To finish Beginning work in Process (36,000 x 50%) =  18,000

Started and Completed (102,000 - 36,000) x 100%    = 66,000

Ending Work In Process (24,000 x 50%)                      = 12,000

Equivalent units of production for conversion Costs   = 96,000

Step 2

Determine the Conversion Costs for the Current period  

Conversion Costs incurred = $288,000

Step 3

Determine the Cost per equivalent unit for conversion costs

Cost per equivalent unit = Total Cost ÷ Total Equivalent units

therefore,

Cost per equivalent unit = $288,000 ÷ 96,000 = $3.00

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