Question

Which of the following is the best explanation of the relevance of equivalent production units in process costing?

• A. A means of equalizing production charged into stock each period
• B. The conversion of partly completed units into an equivalent number of completed units in order that costs may be shared on an equitable basis
• C. The expression of losses in terms of an equivalent number of units of good production in order that their value may be calculated.
• D. A means by which the output achieved may be compared with the equivalent quantity budgeted for the period under review.

Answer 1

The correct option is B The conversion of partly completed units into an equivalent number of completed units in order that costs may be shared on an equitable basis

Equivalent production term is applied to the work in progress at the end of accounting period. Its an indication of the amount of work done by a manufacturer who have partially completed units.

Basically, fully completed units and partially completed units are expressed in terms of fully completed units.

for Example:

Units completed 6000

Units partially completed 2000 (50% work is completed)

Equivalent Production will be:

No of Units % completion Equivalent Units

6000 100% 6000

2000 50% 1000

Total Equivalent Production 7000