The-definition.com

Definition

Equivalent units of production

Equivalent units of production measure the work done during the period, expressed in fully completed units. This concept is used to determine the cost per unit of completed product.

The formula to compute equivalent units of production is as follows:

      Unit completed and transferred out + equivalent units of ending work in process = equivalent units of production.

To better understand this concept of equivalent units, consider the following two separate examples.

Example 1: The blending departments entire output during the period consists of ending work in process of 4,000 units which are 60% complete as to materials, labor, and overhead. The equivalent units of production for the Blending Department are therefore 2,400 units (4,000 60%).

This method of computing equivalent units is referred to as the weighted-average method. It considers the degree of completion (weighting) of the units completed and transferred out and the ending work in process.

Share it:  Cite

More from this Section

  • Variance
    Variance is the difference between total actual costs and total standard costs. The variance ...
  • Matching principle
    This method of expense recognition is referred to as the Matching principle that companies ...
  • Depreciation
    Depreciation is the process of allocating to expense the cost of a plant asset over its ...
  • Share Certificate
    A Share Certificate or a Stock Certificate is a written legal document of a corporation's ...
  • Cash payments journal
    Cash payments (cash disbursements) journal refers to a special journal where companies ...