Example of Equivalent Units

Example of Equivalent Units

In work in progress we calculate the equivalent unit and the average cost is calculated on the bases of equivalent units. It is important to note that equivalent unit is calculated for the purposes of valuation of closing stock and output. In process account the unit is presented in terms of totality and not equivalence.

There are two department production and finishing. The production department cost of 100,000 units is during the year is as under

Item	amount
Direct Material	600,000
Direct Labour	400,000
Overheads	200,000
Closing Stock	100,000 units
Fully competed unit	90,000
70% completed units	10,000

Calculate the statement of equivalent unit and process account for production Department

1. Statement of equivalent units

	Total unit		Equivalent unit
Fully competed unit	90,000	100%	90,000
Partly completed units	10,000	70%	7,000
Total	100,000		97,000

2. Cost per unit

Cost incurred		1,200,000
Equivalent unit		97,000
Cost per unit	Cost/expected output	1,200,000/97,000= 12.37

3. Valuation of output and WIP

Fully worked unit	90,000	12.37	1,113,400
Partly completed unit	7,000	12.37	86,600

                                                                   Process Account

item	units	amount	item	Units	Amount
Material	100,000	600,000	Output	90,000	1,113,400
Labour		400,000	Closing stock	10,000	86,600
Overheads		200,000
	100,000	1,200,000		100,000	1,200,000