Determine the equivalent units of production for cereal, boxes, and conversion costs for March. An equivalent unit is defined as “pounds” for cereal and “24-oz. boxes” for boxes and conversion costs.
Answer:
Equivalent units of production:
Conversion
Cereal Boxes Cost
(in pounds) (in boxes) (in boxes)
Inventory in process, March 1……………… 0 0 600
Started and completed in March………… 75,300 50,200 50,200
Transferred to finished goods
in March……………………………………… 75,300 50,200 50,800
Inventory in process, March 31…………… 825 550 0
Total…………………………………………… 76,125 50,750 50,800
Supporting explanation:
The whole unit inventory in process on March 1 includes both the cereal in the hopper and the boxes in the carousel, and thus includes no equivalent units for the material during the current period. The reason is because the costs for the cereal and boxes were introduced to the Packing Department in February. Since conversion costs are incurred only when the cereal is filled into boxes, all 600 boxes of the March 1 inventory in process will have conversion costs incurred in March.
The product started and completed in March includes 50,200 boxes (50,800 boxes completed less the 600 in the carousel on March 1). These boxes represent 75,300 pounds of cereal [50,200 × (24 oz. ÷ 16 oz.)], since there are 16 ounces to a pound.
The inventory in process on March 31 includes the remaining pounds of cereal in the hopper and boxes in the carousel that are properly included in the equivalent unit computation for March (since the costs were incurred in the department in March). No conversion costs have been applied to these boxes, since they remain unfilled.