Course Name Cost Accounting

Course Code ELE211

Lecturer Name Dr. Mohamed Ahmed Saleh

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Process Costing:
Equivalent Units of Production

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 Equivalent Unit of Production (EUP)
• Some units remain unfinished at the end of the period. For each
department to account adequately for costs attached to its
unfinished units, the units must be related in terms of equivalent
units of production (EUP).
• EUP are the number of complete units that could have been
produced using the inputs consumed during the period.

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 Equivalent Units of Production (EUP)
Equivalent units are the product of the number of partially
completed units and the percentage completion of those units.

We need to calculate equivalent units because a department

usually has some partially completed units in its beginning and
ending inventory. These partially completed units complicate the
determination of a department’s output for a given period and the
unit cost that should be assigned to that output.
Equivalent Units – The Basic Idea
Two half completed products are equivalent to one
complete product.

+ = 1

So, 10,000 units 70% complete

are equivalent to 7,000 complete units.
 Calculating Equivalent Units
Equivalent units can be calculated
two ways:
The First-In, First-Out Method – FIFO is
covered in the appendix to this chapter.

The Weighted-Average Method – This method

will be covered in the main portion of the chapter.
 Equivalent Unit of Production (EUP)
Direct Materials Conversion Cost (DL + MOH)
$500,000 $820,000

FIFO Vs. Weighted average method?

(4) Beginning Work- in- (8) Units Completed/ (2) Ending Work-
(6) Units Started in- Process
Process (BWIN) Units this Period Transferred Out
(EWIN) Units

2?
1st April 30th
2021 April
75% 100% 50% 2021
0%
Beginning Costs 1?
DM= $75,000
CC= $105,000
Total Beginning Costs $180,000
Total Cost $180,000
Costs During April $1,320,000
Total Costs $1,500,000
To assign the total manufacturing costs between finished units and work in

process units with weighted average method :

Step 1: Calculate the physical units.

Step 2: Calculate the number of units completed during

period.

Step 3: Calculate the EUP for material and conversion costs.

Step 4: Beginning costs + costs incurred this period.

Step 5: Calculate cost per equivalent unit for material and

conversion costs.
Step 6: Allocate the costs between completed units and
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ending work in process.
Learning Objective 2
Compute the equivalent units of
production using the weighted-
average method.
 Equivalent Units of Production
The weighted-average method . . .
1. Makes no distinction between work done in prior or
current periods.
2. Blends together units and costs from prior and current
periods.
3. Determines equivalent units of production for a
department by adding together the number of units
transferred out plus the equivalent units in ending Work in
Process Inventory.
Weighted-Average – An Example
Smith Company reported the following activity in the
Assembly Department for the month of June:

Percent Completed
Units Materials Conversion
Work in process, June 1 300 40% 20%

Units started into production in June 6,000

Units completed and transferred out 5,400

of Department A during June

Work in process, June 30 900 60% 30%

 Weighted-Average – An Example
The first step in calculating the equivalent units is to identify the units
completed and transferred out of Assembly Department in June
(5,400 units)

Materials Conversion
Units completed and transferred
out of the Department in June 5,400 5,400
Weighted-Average – An Example
The second step is to identify the equivalent units of production in
ending work in process with respect to materials for the month
(540 units) and adding this to the 5,400 units from step one.

Materials Conversion
Units completed and transferred
out of the Department in June 5,400 5,400
Work in process, June 30:
900 units × 60% 540

Equivalent units of Production in

the Department during June 5,940
Weighted-Average – An Example
The third step is to identify the equivalent units of production in ending
work in process with respect to conversion for the month (270 units) and
adding this to the 5,400 units from step one.

Materials Conversion
Units completed and transferred
out of the Department in June 5,400 5,400
Work in process, June 30:
900 units × 60% 540
900 units × 30% 270
Equivalent units of Production in
the Department during June 5,940 5,670
 Weighted-Average – An Example
Equivalent units of production always equals:
Units completed and transferred
+ Equivalent units remaining in work in process

Materials Conversion
Units completed and transferred
out of the Department in June 5,400 5,400
Work in process, June 30:
900 units × 60% 540
900 units × 30% 270
Equivalent units of Production in
the Department during June 5,940 5,670
Learning Objective 3

Compute the cost per equivalent

unit using the weighted-average
method.
Compute and Apply Costs
Beginning Work in Process Inventory: 400 units
Materials: 40% complete $ 6,119
Conversion: 20% complete $ 3,920
Production started during June 6,000 units
Production completed during June 5,400 units

Costs added to production in June

Materials cost $ 118,621
Conversion cost $ 81,130

Ending Work in Process Inventory: 900 units

Materials: 60% complete
Conversion: 30% complete
 Compute and Apply Costs
The formula for computing the cost per
equivalent unit is:
Cost of beginning
Cost per
Work in Process + Cost added during the
equivalent =
Inventory period
unit
Equivalent units of production
 Compute and Apply Costs
Here is a schedule with the cost and equivalent unit
information.
Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, June 1 $ 10,039 $ 6,119 $ 3,920
Cost added in Assembly 199,751 118,621 81,130
Total cost $ 209,790 $ 124,740 $ 85,050

Equivalent units 5,940 5,670

 Compute and Apply Costs
Here is a schedule with the cost and equivalent unit
information.
$124,740 ÷ 5,940 units = $21.00 $85,050 ÷ 5,670 units = $15.00
Total
Cost Materials Conversion
Cost to be accounted for:
Work in process, June 1 $ 10,039 $ 6,119 $ 3,920
Cost added in Assembly 199,751 118,621 81,130
Total cost $ 209,790 $ 124,740 $ 85,050

Equivalent units 5,940 5,670

Cost per equivalent unit $ 21.00 $ 15.00

Cost per equivalent unit = $21.00 + $15.00 = $36.00

Learning Objective 4

Assign costs to units using the

weighted-average method.
 Applying Costs
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
 Applying Costs
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
 Applying Costs
Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
 Computing the Cost of Units
Transferred Out Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
Units completed and transferred out:
Units transferred 5,400 5,400
 Computing the Cost of Units
Transferred Out Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
Units completed and transferred out:
Units transferred 5,400 5,400
Cost per equivalent unit $ 21.00 $ 15.00
 Computing the Cost of Units
Transferred Out Assembly Department
Cost of Ending WIP Inventory and Units Transferred Out
Materials Conversion Total
Ending WIP inventory:
Equivalent units 540 270
Cost per equivalent unit $ 21.00 $ 15.00
Cost of Ending WIP inventory $ 11,340 $ 4,050 $ 15,390
Units completed and transferred out:
Units transferred 5,400 5,400
Cost per equivalent unit $ 21.00 $ 15.00
Cost of units transferred out $ 113,400 $ 81,000 $ 194,400
Learning Objective 5

Prepare a cost reconciliation

report.
Reconciling Costs
Assembly Department
Cost Reconciliation
Costs to be accounted for:
Cost of beginning Work in Process Inventory $ 10,039
Costs added to production during the period 199,751
Total cost to be accounted for $ 209,790
Reconciling Costs
Assembly Department
Cost Reconciliation
Costs to be accounted for:
Cost of beginning Work in Process Inventory $ 10,039
Costs added to production during the period 199,751
Total cost to be accounted for $ 209,790

Cost accounted for as follows:

Cost of ending Work in Process Inventory $ 15,390
Cost of units transferred out 194,400
Total cost accounted for $ 209,790
Example:

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Solution: the equivalent units for may:

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Solution: the cost per equivalent unit

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Solution: the total cost for WIP ending and the units
transferred to next process

411,500
reconciling
costs
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