Magic Company adds materials at the beginning of the process in Department A. The following information on physical units for Department A for the month of August is available. Work in process, August 1 (60% complete with respect to conversion)72,000 Started in August480,000 Completed480,000 Work in process, August 31 (30% complete with respect to conversion)72,000 Required: a. Compute the equivalent units for materials costs and for conversion costs using the weighted-average method. b. Compute the equivalent units for materials costs and for conversion costs using the FIFO method.

Equivalent units

a) Weighted average =  523,200 units

b)  FIFO =  480,000 units

Explanation:

FIFO Method.

Fully worked units: These represent units of inventory that were started in a current period and completed that same period. The fully worked units are calculated in order to separate the opening inventory from  the the newly introduced when accounting for completed units under the FIFO.

For magic company , fully worked units is

= 480,000 - 72,000 = 408,000 units

Equivalent units using Weighted Average

Here, there are no distinction between opening inventory and the newly introduced.

                                                                       Equivalent Units

Completed unit                    (100%× 480,000) = 480,000

Closing inventory                (60% × 72,000) =     43,200

Total equivalent units                                       523,200

Equivalent Units using FIFO

Item                                                               Equivalent Units

Opening inventory              (40% × 72,000) =  28,800

Fully worked                        (100%× 408,00) = 408,000

Closing inventory                (60% × 72,000) = 43,200

Total equivalent units                                     480,000

Equivalent units

a) Weighted average =  523,200 units

b)  FIFO =  480,000 units

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