What is the direct labor cost per equivalent unit?

Question

A company uses a process cost accounting system. Its Assembly Department's beginning inventory consisted of 50,000 units, 3/4 complete with respect to direct labor and overhead. These units were completed and transferred out and the department started and transferred out an additional 120,000 units this period. The ending goods-in-process inventory consists of 40,000 units that are 1/4 complete with respect to direct labor and overhead. All direct materials are added at the beginning of the process. The department incurred direct labor costs of $24,000 and overhead costs of $32,000 for the period. Also, its beginning inventory included $6,600 of direct labor and $9,800 of overhead costs. The direct labor cost per equivalent unit is: 

A. $0.141.

B. $0.170.

C. $0.200.

D. $0.255.

E. $0.310

Answer 1

1. Units transferred out = 50,000 + 120,000 = 170,000
2. Ending WIP equivalent units for labor = 40,000 × 1/4 = 10,000
3. Total equivalent units = 180,000

Total direct labor cost:

1. Beginning inventory labor = $6,600
2. Current labor added = $24,000
3. Total = $30,600

Direct labor cost per equivalent unit:

1. $30,600 ÷ 180,000 = $0.170

Answer: B) $0.170



For labor, you divide total labor cost by equivalent units of labor. Since ending inventory is only 1/4 complete, only part of those 40,000 units counts for labor.