After materials, labor and overhead costs have been accumulated in a department, the department's output must be determined

so that unit cost can be computed. A department usually has some partially completed units in its ending inventory. It does not seem reasonable to count these partially completed units as equivalent to fully completed units when counting the department's output. These partially converted units are mathematically converted into an equivalent number of fully completed units. In process costing this is done by using the following formula: Equivalent Units = Number of partially Completed Units Percentage of Completion

Process Costing - Equivalent Units of Production

Ex: if 1000 units are in Work-In-Process at the end of the period and are considered 80% complete, the equivalent production is 800 units. The equivalent unit cost of manufacturing an item equals the total cost divided by the equivalent units. If the total cost of manufacturing the item was $2400, the unit cost would be $3 ($2400/800). Equivalent units are determined separately for Direct Material and Conversion Cost. If 3000 units in ending work-in-process are 70% complete as to direct material and 90% complete as to conversion, the equivalent units are 2100 for direct material and 2700 for conversion Goods are typically transferred through many different processes before being becoming finished goods. In a process costing system, the units in ending work in process inventory are obviously not complete, and the units that were in beginning work in process inventory only needed a certain amount of productive effort before they were finished. To account for these units, we need to find equivalent units of production, which are essentially the total number of complete units that could have been manufactured given the amount of productive effort expended during the period. In this podcast I will walk you through the computation of equivalent units of production using both the FIFO and Weighted Average methods.