Question

Give numerical example explaining the concept of Equivalent number of units. Discuss the advantages of using equivalent number f units?

Answer 1

The process got introduced 1000 units in production. All the material were sent to the shop floor at the start of the process and there are variety of steps are undertaken during the process to complete the units to finished good. The conversion costs ie. labor and manufacturing overheads are evenly spread throughout the process. The units in process at the end of period are 35% complete in respect of conversion cost. There were 1000 (100% introduced) equivalent units for materials and 350 (ie. 1000*35%) equivalent units for conversion costs.

The equivalent units calculation is the theoretically completed units that was introduced in the process. The closing WIP units are judged in respect of the completion and the all the units completed and in-completed are recalculated put under the completed units to calculate the cost of inputs per completed (equivalent) unit.

The advantages of using the equivalent number of units are:

1) to access the number of finished and WIP units.

2) to access the input cost per complete (equivalent) unit.

3) to access the cost of Closing WIP units.

4) to access the completed stage of the introduced units to the process.

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