Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 6

How is the equivalent unit calculation affected when direct materials are added at the beginning of the process rather than uniformly throughout the process?

Step 1 of 3

Equivalent units:

In a manufacturing concern production is a continuous process. But at the end of the accounting period every organization is required to calculate the cost incurred in production but it may cause problem due to the work in progress in the inventory.

Wok-in-progress inventory means that raw material on which process has started but has not been completed yet. Hence, for the sake of calculating cost companies convert the partially completed units into completed units which are known as the equivalent units.