[Tobecpa1]

I thought I know how to calculate the EV using FIFO from Becker:

Beg Units * % to be completed

Add: Completed during the period – Beg Units

Add: Ending Units * % completed

But I come cross this one question and use the formula above it didn’t work.

The Lynch Company started the current year with 10,000 units in process that were 60 percent complete as to direct labor costs. As to direct labor, these units had a cost at that time of $45,000. During the year, another 50,000 units were started and direct labor cost for the period was $320,000. At the end of the year, the company had 4,000 units still in process which were 20 percent complete as to direct labor. If the company uses a FIFO system, what is the cost of a unit this year as to direct labor costs? –

I did:

10,000 * .40 = 4000

Add: 50,000 – 10,000 = 40,000

Add: 4000 * .20 = 800

Total EV = 44,800 units

But the answer for the above is 50,800 units.

Can someone please let me know what I did wrong? my exam is only few days away.

Thank you very much!

[Vienna]

Hi! The question does not ask about the EV, but rather how many units were manufactured during the year to calculate the cost per unit. Therefore, your formula does not apply. Also, it says that another 50,000 units were started, i.e., in addition to the 10,000 units beginning WIP. Therefore, you wouldn't subtract the 10,000.

Here's the calculation that gets you to the 50,800:

Units completed from beginning WIP: 10,000 * .40 = 4000

Units started and completed: 50,000 – 4,000 not completed = 46,000

Units partially completed: 4000 * .20 = 800

Total units manufactured = 50,800 units

The answer probably includes the dollar per unit?

[Vienna]

Hi! The question does not ask about the EV, but rather how many units were manufactured during the year to calculate the cost per unit. Therefore, your formula does not apply. Also, it says that another 50,000 units were started, i.e., in addition to the 10,000 units beginning WIP. Therefore, you wouldn't subtract the 10,000.

Here's the calculation that gets you to the 50,800:

Units completed from beginning WIP: 10,000 * .40 = 4000

Units started and completed: 50,000 – 4,000 not completed = 46,000

Units partially completed: 4000 * .20 = 800

Total units manufactured = 50,800 units

The answer probably includes the dollar per unit?

[Author]

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