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This is the equivalent units of production for conversion costs using FIFO. The question asks for the equivalent units for direct materials .
Since the company uses FIFO and there is spoilage, we need to make 4 calculations to determine the number of equivalent units of materials costs. (1) We need to determine the equivalent units of production required to finish the beginning work-in-process. (2) We need to calculate the number of units that were started and completed during the period. (3) We need to determine the number of equivalent units of production done to start the ending work-in-process. (4) And we need to determine the number of equivalent units of production that were spoiled. Because the direct materials are added when the process is 70% complete with respect to conversion, and for the units in BWIP the process was only 60% complete, there were zero equivalent units in BWIP for direct materials. Therefore, 100% of the direct materials for all 20,000 units in BWIP were added during the period and so Completion of BWIP is 20,000 equivalent units. 170,000 good units were completed, and that included the 20,000 units in BWIP that were completed. Therefore, units Started & Completed equals 170,000 minus 20,000, or 150,000 EUP. The direct materials in EWIP are 100% complete, because direct materials are added when the process is 70% complete with respect to conversion, and for the units in EWIP, the process is 80% complete. Therefore, direct materials in EWIP are equal to the number of physical units: 25,000. The direct materials are added immediately after inspection takes place. Since the direct materials are not present in the units when they are inspected, there can be no equivalent units of spoilage in direct materials. The total equivalent units of production for direct materials using FIFO is thus 20,000 + 150,000 + 25,000 + 0 = 195,000. How Calculated EUP-Direct Materials 1) Completion of BWIP 20,000 × 100% 20,000 2) + Started & Completed 170,000 ? 20,000 150,000 3) + Starting of EWIP 25,000 × 100% 25,000 4) + Starting Spoiled Units 5,000 × 0% 0 EUP (FIFO) 195,000
This answer assumes that materials are added to the defective units. The problem says that inspection takes place immediately before the direct materials are added. Therefore, the defective units are pulled from production before any direct materials are added to them.
This answer does not include the direct materials that were added to the BWIP when it reached the 70% completion point.