The USA Company manufactures flags in a single process. The following information is available for January 2011:

Beginning WIP o units
Started production 18,000 units
Completed and transferred out 12,000units
Ending WIP 6,000 units
Production Cost

Beginning WIP inventory $0
Cost added during January
Direct Materials $213,885
Direct Labor $577,500
Manufacturing overhead $391,875
The units still in process are 45% complete with respect to direct materials and 35% complete with respect to conversion costs.
a) What is the equivalent units for direct materials and conversion costs?
b) Compute the cost per equivalent unit for direct materials and conversion costs

To calculate the equivalent units for direct materials and conversion costs, follow these steps:

a) Equivalent Units for Direct Materials:
Step 1: Calculate the equivalent units for direct materials completed and transferred out.
Equivalent Units for Direct Materials Completed and Transferred Out = Completed and Transferred Out Units * 100%
Equivalent Units for Direct Materials Completed and Transferred Out = 12,000 units * 100% = 12,000 units

Step 2: Calculate the equivalent units for direct materials in the ending work in process (WIP).
Equivalent Units for Direct Materials in Ending WIP = Ending WIP Units * % Complete for Direct Materials
Equivalent Units for Direct Materials in Ending WIP = 6,000 units * 45% = 2,700 units

Step 3: Calculate the total equivalent units for direct materials.
Total Equivalent Units for Direct Materials = Equivalent Units for Direct Materials Completed and Transferred Out + Equivalent Units for Direct Materials in Ending WIP
Total Equivalent Units for Direct Materials = 12,000 units + 2,700 units = 14,700 units

b) Equivalent Units for Conversion Costs:
Step 1: Calculate the equivalent units for conversion costs completed and transferred out.
Equivalent Units for Conversion Costs Completed and Transferred Out = Completed and Transferred Out Units * 100%
Equivalent Units for Conversion Costs Completed and Transferred Out = 12,000 units * 100% = 12,000 units

Step 2: Calculate the equivalent units for conversion costs in the ending work in process (WIP).
Equivalent Units for Conversion Costs in Ending WIP = Ending WIP Units * % Complete for Conversion Costs
Equivalent Units for Conversion Costs in Ending WIP = 6,000 units * 35% = 2,100 units

Step 3: Calculate the total equivalent units for conversion costs.
Total Equivalent Units for Conversion Costs = Equivalent Units for Conversion Costs Completed and Transferred Out + Equivalent Units for Conversion Costs in Ending WIP
Total Equivalent Units for Conversion Costs = 12,000 units + 2,100 units = 14,100 units

To compute the cost per equivalent unit for direct materials and conversion costs, divide the total cost for each category by the respective total equivalent units.

Cost per Equivalent Unit for Direct Materials = Total Direct Materials Cost / Total Equivalent Units for Direct Materials
Cost per Equivalent Unit for Conversion Costs = Total Conversion Costs / Total Equivalent Units for Conversion Costs

Cost per Equivalent Unit for Direct Materials = ($213,885) / (14,700 units)
Cost per Equivalent Unit for Conversion Costs = ($577,500 + $391,875) / (14,100 units)