COST ACCOUNTING

UNIT 2 CHAPTER 2 – PART II -EQUIVALENT PRODUCTION

Meaning of Work In Progress:
In Process type of Industries where production is continuous activity, there may be some
incomplete production at the end of an accounting period. Such incomplete production units
are known as Work in progress

Meaning of Equivalent Production:

Equivalent Production represents the incomplete production units express in terms of
Equivalent completed units. In other words, it means converting the uncompleted production
into its equivalent of completed units. The term equivalent unit means a notional quantity of
completed units substituted for an actual quantity of incomplete physical units in progress,
when the aggregate work content of the incomplete units is deemed to be equivalent to that of
the substituted quantity, (e.g. 100 units of 30% completed = 30 completed units). The principle
applies when operation costs are being apportioned between work- in-progress and completed
output. Thus in each process an estimate is made of the percentage completion of any work-in-
progress. A production schedule and a cost schedule will then be prepared. The work-in-
progress is inspected and an estimate is made of the degree of completion, usually on a
percentage basis. It is most important that this estimate is as accurate as possible because a
mistake at this stage would affect the stock valuation used in the preparation of final accounts

Calculation of Equivalent Production:

Particulars Equivalent
Production
Opening Stock of WIP (Units X % of work incomplete) Xxx
Add: Units introduced and completely processed (Input – Closing WIP) Xxxx
Add: Closing Stock of WIP (Units X % of completion) Xxx
Equivalent Production Xxxx
Examples
1. From the following data relating to a process, calculate equivalent production for
the month of June 2021:
Opening Work-In-Progress (40% Complete) 4000 Units
Introduced into the process during the month 10000
Units Transferred to next process 11500
Units Closing Work-In-Progress (60% Complete) 2500 Units

2. From the following calculate equivalent production as per

FIFO method
Opening Work in Progress (40% complete) 2,700 units
Input during the month 31,800 units
Closing Work in Progress (35% complete) 3,000 units
No. of units transfer to next process 31,500 units

3. From the following information prepare Process A account as per FIFO method also
make necessary working : Opening Work In Progress (40% complete) 400 units
valued at Rs. 1120. Units introduced during the current period 2,000 units. Finished
output during the period transferred to Process B 2,200 units and Closing Work In
Progress (30% complete) 200 units. Cost incurred during the period Rs. 16800.

S.Y.BBA -2021-22
 COST ACCOUNTING
UNIT 2 CHAPTER 2 – PART II -EQUIVALENT PRODUCTION

4. From the following information prepare Process A account as per FIFO method also
make necessary working : Opening Work In Progress (40% complete) 100 units
valued at Rs. 280. Units introduced during the current period 500 units. Finished
output during the period transferred to Process B 550 units and Closing Work In
Progress (30% complete) 50 units. Cost incurred during the period Rs. 4200.

S.Y.BBA -2021-22