Leo Manufacturing Company uses the FIFO method in its process costing system. The first processing department, the Soldering Department, started the month with 32,000 units in its beginning work-in-process inventory that were 70% complete with respect to conversion costs. The conversion cost in this beginning work-in-process inventory was $116,150. An additional 84,500 units were started into production during the month. There were 38,000 units in the ending work-in-process inventory of the Soldering Department that were 80% complete with respect to conversion costs. A total of $580,125 in conversion costs were incurred in the department during the month. What would be the cost per equivalent unit for conversion costs?

$6.71 per unit

Explanation:

The computation of the cost per equivalent unit for conversion costs is shown below:

As we know that

Cost per equivalent unit for conversion costs is

= Total conversion cost in the month ÷ Equivalent Units of Production

where,

Equivalent units of Production is

= (Beginning Inventory × Percentage completed in the month) + [(Units started in the month - Ending Inventory) × 100%] + (Ending Inventory ×  percentage completed in the month)

= (32,000 × 30%) + [(84,500 - 38,000) × 100%] + (38,000 × 80%)

= 86,500 units

Now the cost per equivalent unit for conversion cost is

= $580,125 ÷ 86,500 units

= $6.71 per unit

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