PROCESS COSTING – PART 1
Equivalent Units
Continuous production with different processes faced a problem, i.e. how to deal with processes which were not completes by the YEAR END. This issue was resolve by introduction of equivalent units, according to which partly completed units are expressed as % of fully completed units. .lets suppose some process is 200units are partially completed in certain process, it can be express as “100units fully completed units”
In exam question involving EU work in progress, follow the following steps:
- Convert output unit to equivalent units by making a statement of equivalent units
- Calculate the cost per equivalent unit(EU)
Total Costs / Total Equivalent Units
- Calculate the value of each output by multiplying the number of equivalent units by unit cost in PROCESS ACCOUNT
EXAMPLE
Alex and co have 1000 units but only 50% were completed , remaining 50% are 25% complete
Costs incurred in period is $100
STATEMENT OF Equivalent units
| Output | % | Equivalent units | |
| Completed units | 500 | 100% | 500 |
| Incomplete units(WIP) | 500 | 50% | 250 |
|
Total units |
|
750 |
|
| Total cost | $100 | ||
| Cos per EU | $7.50 |