Wally company has a process cost system. All materials are introduced at the beginning of the process in department one. The following information is available for the month of january 2013.

Work in process, 1/1/2013 (40% complete as to conversion costs 1,000

Started in january 4,000

Transferred to department two during january 4,200

work -in-process, 1/31/2013 (25% as to conversion costs 800

What are the equivalent units of production for materials under average method for the month of january 2013?

Choices

• 3,800
• 4,000
• 5,000
• 4,400

 

The equivalent units of production for materials under average method for the month of January 2013 is 5,000. The option (c) is the correct answer.

Step-by-step explanation

Compute the equivalent units of production for materials under average method as follows: -

Equivalent Units for Direct Materials = {Completed (transferred) Units x Work completion Percentage} + (Ending Inventory Units x work completion percentage)

= {Completed (transferred) Units x 100%} + (Ending Inventory Units x 100%)

= (4,200 x 100%) + (800 x 100%)

= 5,000.

Explanation: Under average method, the work done on the beginning inventory in last period is ignored for equivalent units computation in the current period. As materials as added at the starting of the process hence, the percentage of work done on the completed units and ending inventory units would be 100%.

Working Note: Compute the ending inventory units as follows: -

Ending Inventory Units = Beginning Inventory Units + Units started during January - Transferred Units

= 1,000 + 4,000 - 4,200

= 800.