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Finding equivalent units for direct materials

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• Nihon Ltd is a manufacturer of digital cameras. It has two departments: Assembly and Testing. In January 2014, the company incurred $850,000 on direct materials and $898,000 on conversion costs, for a total manufacturing cost of $ 1,748,000.
Assume there was no beginning inventory of any kind on 1 January 2013. During January, 10,000 cameras were placed into production and all 10,000 were fully completed at the end of the month. What is the unit cost of an assembled camera in January?
• Assume that during February 10,000 cameras are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 9,000 cameras are fully complete at the end of the month. All direct materials have been added to the remaining 1,000 cameras. However, on average, these remaining 1,000 cameras are only 50% complete as to conversion costs.
• What are the equivalent units for direct materials and conversion costs and their respective costs per equivalent unit for February?

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Solution Summary

The solution shows step by step way of computing the equivalent units for direct materials and conversion costs when they are partially processed and then finding the cost per equivalent unit.

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Solution:

• 1. Total cost of assembled cameras in January for 10,000 units = Direct materials + Direct labor + Overheads = 850000+898000 = $1,748,000
Unit cost = $1,748,000 / 10,000
= ...

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Radhika Lakshmi, MPhil
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  • MCom, Annamalai University
  • IATA, International Air Transport Association
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