What are the equivalent units of production for materials during the period?
Another acceptable method for determining unit cost under process costing is the first-in, first-out (FIFO) cost method. Under the FIFO method, we assume any units that were not completed last period (beginning work in process) are finished before anything else is started. The following table shows the differences between the weighted average method and the FIFO cost method: Show We will look at each item individually as we discuss the steps of process costing. Under either method, weighted average or FIFO, process costing consists of 5 steps:
Physical Flow of Units The physical flow of units is as follows under the weighted average method: Units in Beg. WIPUnits Completed and Transferred+ Units Started this period+ Units in End. WIP= Total Units = Total UnitsThis is altered just slightly under the FIFO method as we must separate the items in units completed into Units Completed from beginning work in process and Units started and completed this period since under FIFO, we must finish anything from beginning work in process before we start something new. Under the FIFO, we the physical flow of units would be documented as: Units in Beg. WIPUnits Completed and Transferred:+ Units Started this period Beg. Work in Process Units Completed= Total Units + Units started and Completed this period= Units completed and transferred+ Units in End. WIP = Total UnitsJust as in the weighted average method, the 2 Total Units figures must agree! Equivalent Units of Production Under the FIFO method, we will calculate equivalent units for 3 things: Units completed from beginning work in process, units started and completed this period and units remaining in ending work in process. This video will discuss the differences between the Weighted Average and FIFO methods for equivalent units (if you are comfortable with the weighted average method, skip to minute 4:06 to begin the discussion on the FIFO method). Equivalent units for the period will be calculated as follows under FIFO (keep in mind, you may have different percent complete for materials, labor and overhead):
To illustrate the computation of equivalent units under the FIFO method, assume the following facts (for simplicity we are using just one percent complete for materials, labor and overhead): Beginning work in process inventory3,000 units, 40% completeUnits started this period10,000 unitsEnding work in process inventory5,000 units, 20% completeThe physical flow of units would be (calculate units started and completed as units started 10,000 – units in ending work in process 5,000): The equivalent production for the period would be: Units from beginning WIP [3,000 units x (100% – 40% complete)] 1,800Units started and completed 5,000 units x 100% complete 5,000Units in ending WIP 5,000 units x 20% complete 1,000 Total Equivalent Units 7,800Cost per Equivalent Unit Under the weighted average method, we use beginning work in process costs AND costs added this period. Under the FIFO method, we will only use the costs added this period. This video will explain the differences between the two approaches. The formula we will use for calculating cost per equivalent unit under the FIFO Method is: Current Costs added this period÷ Total Equivalent Units= Cost per Equivalent UnitsAssign Costs When we assign costs to units completed and transferred and units remaining in ending work in process under the FIFO method, we need the following items:
This video will provide a demonstration of cost assignment under the FIFO method. Reconcile Costs Finally, something is the same under FIFO and Weighted Average. We want to make sure that we have assigned all the costs from beginning work in process and costs incurred or added this period to units completed and transferred and ending work in process inventory. First, we need to know our total costs for the period (or total costs to account for) by adding beginning work in process costs to the costs incurred or added this period. Then, we compare the total to the cost assignment in step 4 for units completed and transferred and ending work in process to get total units accounted for. Both totals should agree. What are the equivalent units of production?An equivalent unit of production is an expression of the amount of work done by a manufacturer on units of output that are partially completed at the end of an accounting period. Basically the fully completed units and the partially completed units are expressed in terms of fully completed units.
What are the equivalent units of production for direct materials under average method?Equivalent units = Number of physical units × Percentage of completion. For direct materials, 3,000 equivalent units = 5,000 physical units × 60 percent complete; for direct labor and overhead, 1,500 equivalent units = 5,000 physical units × 30 percent complete.
What are equivalent units of production and how are they used in process costing?The equivalent units of production (EUP) are used to measure the level of production work done on partially completed units at the end of the period. This measurement is done to express the total number of completed units.
How are equivalent units calculated in a process costing system?Process costing requires partially completed units in ending work-in-process inventory to be converted to the equivalent completed units (called equivalent units). Equivalent units. are calculated by multiplying the number of physical (or actual) units on hand by the percentage of completion of the units.
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