If a department that applies process costing starts the reporting period with 40,000 physical units that were 80% complete with respect to direct materials and 50% complete with respect to direct labor, it must add 8,000 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.

Question

Quizplus · Accepted Answer

In process costing, equivalent units are used to account for partially completed units. The department in question has started the reporting period with 40,000 physical units that are partially completed (80% complete with respect to direct materials and 50% complete with respect to direct labor). To calculate the equivalent units for direct materials and direct labor, the department must add the units needed to complete the partially completed units (8,000 equivalent units for direct materials and 20,000 equivalent units for direct labor). Therefore, the statement is true.

If a Department That Applies Process Costing Starts the Reporting