A department adds raw materials to a process at the beginning of the process and incurs conversion costs uniformly throughout the process. For the month of January, there were 10,000 units in the Beginning Work-in-Process Inventory that were 80% complete; 90,000 units started into production in January; and 20,000 units that were 40% complete in the Ending Work-in-Process Inventory at the end of January. Using the FIFO method, what were the equivalent units of production for materials for the month of January?

Equivalent units are notional whole units which represent incomplete work and are used to apportion cost between completed work and work in progress.

Using the FIFO method, to calculate the equivalent units, we follow the principle that units of inventory are to be worked upon based on the principle of first come, first serve. The units of inventory that emerged first are worked upon first and so on in the order of arrival.

Equivalent units = Degree of completion (DOC) (%) × units of inventory

Item Units DOC Workings EU Notes

Opening invento 10,000.00 20% 20%*10000 2,000.00 1

Fully worked 70,000.00 100% 100%*70000 70,000.00 2

Closing WIP 20,000.00 40% 40%*20000 8,000.00 3

80,000

Notes

1. DOC for opening inventory is 100%-80%. Remember that 80% work has been done in the previous period, so the balance is to be done in this current period

2. Fully work represent the units of inventory introduced in the current period and completed in the same period. Meaning 100% work was achieved in theperiod.

3. Closing work is only 40% completed. This represent work started this period but not yet completed.

Equivalent units for the month of January is 80,000 units i.e (2000+70000+8000)