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Equivalent Units of Activity, Cost per Equivalent Unit, Returns

Scrooge and Zilch, a public accounting firm in London, is engaged in the preparation of income tax returns for individuals. The firm uses the weighted-average method of process costing for internal reporting. The following information pertains to February. (£ denotes the British monetary unit, pounds sterling.)*

Returns in process, February 1:
(25% complete) 200
Returns started in February 825
Returns in process, February 28:
(80% complete) 125
Returns in process, February 1:
Labor £ 6,000
Overhead 2,500
Labor, February (4,000 hours) 89,000
Overhead, February 45,000

* Although the euro is used in most European markets, day-to-day business in the United Kingdom continues to be conducted in pounds sterling.

1. Compute the following amounts for labor and for overhead:

a. Equivalent units of activity.

Total Equivalent
units of activity

b. Cost per equivalent unit.
Total Equivalent
units of activity
Labor £
Overhead £
Total £

2. Compute the cost of returns in process as of February 28.
Cost of returns £.

Solution Summary

The solution determines the equivalent units of activity, cost per equivalent unit and returns.