Equivalent units should be computed separately for direct materials and conversion costs.

Question

Quizplus · Accepted Answer

Equivalent units refer to the units of production that have been completed or partially completed during a period. As direct materials and conversion costs are different types of costs, they should be calculated separately to determine the equivalent units of production for each cost category. For example, we may have partially completed products that have incurred direct materials costs but have not yet undergone any conversion costs, or vice versa. Calculating equivalent units separately for each cost category enables us to accurately track the costs of each product and the overall cost of production.

Equivalent Units Should Be Computed Separately for Direct Materials and Conversion