Answer to Question #314287 in Management for Saif

Question

. From the following information provided by Alfa Manufacturing Ltd, prepare a statement of equivalent units and also, Discuss the concept of equivalent units?

 

  Particular

Quantity

Opening Stock of Inventory

( 60 percent Complete )

500

Units Introduced during the year

 

10000

Closing Inventory of Stock

( completing percentage 40% complete)

200

Answer 1

As described previously, process costing can have more than one work in process account. Determining the value of the work in process inventory accounts is challenging because each product is at varying stages of completion and the computation needs to be done for each department. Trying to determine the value of those partial stages of completion requires application of the equivalent unit computation. The equivalent unit computation determines the number of units if each is manufactured in its entirety before manufacturing the next unit. For example, forty units that are 25% complete would be ten (40 × 25%) units that are totally complete.

Direct material is added in stages, such as the beginning, middle, or end of the process, while conversion costs are expensed evenly over the process. Often there is a different percentage of completion for materials than there is for labor. For example, if material is added at the beginning of the process, the forty units that are 100% complete with respect to material and 25% complete with respect to conversion costs would be the same as forty units of material and ten units (40 × 25%) completed with conversion costs.