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  • Unit6 - Process Costing Equivalent Units Explanation

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    Lelomso Khahla
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    The document discusses the concept of equivalent units in process costing. It provides two examples where total expenditures are given for units at different stages of completion. In the examples, simply adding the units together would not provide an accurate cost per unit, as the units are not like-for-like. The document shows that to calculate cost per unit, the partially complete units must first be converted to equivalent complete units based on their percent complete, then the total expenditure can be divided by the total equivalent complete units.

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    Unit6- Process Costing Equivalent Units Explanation

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    The document discusses the concept of equivalent units in process costing. It provides two examples where total expenditures are given for units at different stages of completion. In the examples, simply adding the units together would not provide an accurate cost per unit, as the units are not like-for-like. The document shows that to calculate cost per unit, the partially complete units must first be converted to equivalent complete units based on their percent complete, then the total expenditure can be divided by the total equivalent complete units.

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    6 views5 pages

    Unit6 - Process Costing Equivalent Units Explanation

    Uploaded by

    Lelomso Khahla
    The document discusses the concept of equivalent units in process costing. It provides two examples where total expenditures are given for units at different stages of completion. In the examples, simply adding the units together would not provide an accurate cost per unit, as the units are not like-for-like. The document shows that to calculate cost per unit, the partially complete units must first be converted to equivalent complete units based on their percent complete, then the total expenditure can be divided by the total equivalent complete units.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
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    of 5

    Unit 6

    Process Costing – Equivalent Units


    September 2020
    Financial Management 200
    Example 1
    Total Expenditure = R140 000
    4 x Complete units 6 x “Half-complete” units

    Can we say we say we have spent R14 000 per unit (R140 000 / 10 units)?
    NO! Not adding like-for-like items (ie adding complete units to half-complete units

    2
    Financial Management 200
    Total Expenditure = R140 000

    4 Complete units “6 Half-complete” units

    Solution:
    • Convert the half-complete units to “equivalent complete units”
    • It is as if we have four complete units and three other “complete units”
    • Cost per unit is R20 000 per unit (R140 000 / 7 units)
    3
    • Six “half complete units = 3 Equivalent Production Units (6 units x 50%)
    Financial Management 200
    Example 2
    Total Expenditure = R140 000
    4 x Complete units “4 x 75%-complete” units

    Can we say we say we have spent R17 500 per unit (R140 000 / 8 units)?
    NO! Not adding like-for-like items (ie adding complete units to 75%-complete units

    4
    Financial Management 200 “Work In
    Progress”
    Example 2
    Total Expenditure = R140 000
    4 x Complete units “4 x 75%-complete” units

    Solution:
    • Convert the 75%-complete units to “equivalent complete units”
    • It is as if we have four complete units and three other “complete units”
    • Cost per unit is R20 000 per unit (R140 000 / 7 units)
    5
    • Four “75% complete units = 3 Equivalent Production units (4 units x 75%)

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