Answer to Question #317406 in Marketing for Maham

Question

From the following information provided by Alfa Manufacturing Ltd, prepare a

statement of equivalent units and also, Discuss the concept of equivalent units

(10 Marks)

Particulars Quantity

Opening stock of inventory

(60 percent complete)

500

Units introduced during the year 10000

Closing inventory of stock

(completion percentage, 40% complete)

200

Answer 1

Process costing can contain many work in process accounts, as previously mentioned. Because each product is at a different stage of completion and the computation must be done for each department, determining the value of the work in process inventory accounts is difficult. Trying to figure out how much those incomplete phases of completion are worth necessitates using the equivalent unit calculation. The equivalent unit calculation determines the number of units produced if each unit is completed before moving on to the next. For example, forty units that are 25% complete would equal ten (40 25%) units that are completely finished.

Direct material is introduced in phases, such as at the start, middle, or end of the process, and conversion expenses are spread out over the duration of the process. The percentage of completion for materials and labor is frequently variable. If material is added at the start of the process, for example, forty units that are 100% complete in terms of material and 25% complete in terms of conversion costs would be the same as forty units of material and ten units (40 25%) completed with conversion costs.