Department M had 600 units 60% completed in process at the beginning of June, 6,000 units completed during June, and 700 units 30% completed at the end of June. Using the first-in, first-out method of inventory costing, the number of equivalent units of production for conversion costs for the period is a.5,850 units b.5,640 units c.6,700 units d.7,300 units

a) 5,850 units

Explanation:

Equivalent units are notional whole units which represent incomplete work and are used to apportion cost between work progress and completed work. These units are determined as follows:

Equivalent units = Degree of work done(%) × units of inventory

Under the first-in -first out  system, to account for the units completed in a period, it is assumed that the opening inventory units are first completed and the balance represents the newly introduced.

Fully worked = completed units - opening inventory

                      = 6,000 - 600

                      = 5,400 units

Items                           Workings                   Equivalent units

Opening inventory    (100-60)%× 600              =  240

Fully worked                100% × 5400                =  5,400

Closing inventory        30% × 700                  =  210

Total equivalent units                                       5,850

= 240 + 5400 +210

=  5,850  units

Note the opening inventory has 60% work done last period so the balance of 40% i.e  (100 - 60)  is completed this period

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