What are Equivalent Production Units?

Equivalent production units represent incomplete production units expressed in terms of equivalent
complete units.

Equivalent Production Units = No. of Incomplete Units * Percentage of completion

Equivalent Production Units should be calculated separately for each element of cost because the
degree of completion with regard to different elements of cost may be different.

Steps to prepare Process Account when there is Work in Progress

Step 1: Prepare Statement of Equivalent Production

Output Units Material Labour Overheads
% Completion Units % Completion Units % Completion Units

Step 2: Prepare Statement of Cost per Equivalent Unit

Element of Cost Cost Equivalent Units Cost per Equivalent Unit

Step 3: Prepare Statement of Evaluation

Particulars Element of Equivalent Cost per Eq. Cost of Eq. Total

Cost Units Unit Units

Step 4: Prepare Process Account

Sum: 13
In process P on 1 July, there was no work-in-progress. During the month of July, 2,000 units of
material were issued at a cost of ₹ 18,000. Labour and overheads totalled ₹9,000 and ₹6,600
respectively. On 31st July, 1,500 units were completed and transferred to the next process. On the
remaining 500 units, which are incomplete, degree of completion was as follows:
Materials 100%
Labour 60%
Overhead 30%
Prepare (a) Statement of Equivalent Production
(b) Statement of Cost
(c) Statement of Evaluation
(d) Process Account

Sum: 14 (No Opening Stock of WIP and no Process Loss)

1. Input of Materials: 10,000 units

2. Current Cost incurred in the process:
Material ₹ 40,000
Labour ₹ 19,460
Overheads ₹ 9,370
3. Closing WIP: 900 units
4. Output transferred to next process 9,100 units
5. Degree of Completion of Closing WIP:
Material 100%
Labour 70%
Overheads 30%
6. Method of Valuation: FIFO

Important Note for a situation with No Opening Stock of WIP but with Process Loss:
1. Normal Loss is not added to equivalent production. However, the realizable value of
normal loss is deducted from the cost of materials so as to calculate the net materials cost
which is used as basis for calculating the material cost per equivalent unit.
2. Abnormal Loss is added to equivalent production on the basis of degree of completion. If
degree of completion is not specified it is assumed to be 100% complete in respect of all
elements of cost.