EX 20-13 Errors in equivalent unit computation

Napco Refining Company processes gasoline. On June 1 of the current year, 6,400 units were 3⁄5 completed in the Blending Department. During June, 55,000 units entered the Blending Department from the Refining Department. During June, the units in process at the beginning of the month were completed. Of the 55,000 units entering the department, all were completed except 5,200 units that were 1⁄5 completed. The equivalent units for conversion costs for June for the Blending Department were computed as follows:



Equivalent units of production in June:
To process units in inventory on June 1: 6,400 × 3
⁄5 3,840
To process units started and completed in June: 55,000 – 6,400 48,600
To process units in inventory on June 30: 5,200 × 1
⁄5 1,040
Equivalent units of production 53,480



List the errors in the computation of equivalent units for conversion costs for the Blending Department for June.


Answer:
1. In computing the equivalent units for conversion costs applicable to the June 1 inventory, the 6,400 units are multiplied by 3/5 rather than 2/5, which is the
portion of the work completed in June. Therefore, the equivalent units should be 2,560 (6,400 × 2/5) instead of 3,840.

2. In computing the equivalent units for conversion costs for units started and completed in June, the June 1 inventory of 6,400 units, rather than the June 30 inventory of 5,200 units, was subtracted from 55,000 units started in the department during June. Therefore, the equivalent units started and completed should be 49,800 instead of 48,600.


3. The correct equivalent units for conversion costs should be 53,400, determined
as follows:
To process units in inventory on June 1:
6,400 × 2/5……………………………………………………………………………… 2,560
To process units started and completed in June:
55,000 – 5,200………………………………………………………………………… 49,800
To process units in inventory on June 30:
5,200 × 1/5……………………………………………………………………………… 1,040
Equivalent units of production……………………………………………………… 53,400