# #18.2 -- Equivalent Units and Cost per Equivalent Units (6.00)

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### Process Costing:

Process Costing Chapter 18

### Chapter 18 Learning Outcomes: Process Costing:

Chapter 18 Learning Outcomes: Process Costing Explain the difference between job order costing, activity based costing, and process costing. Determine when to use job order costing, activity based costing, and process costing when employing cost accounting. Explain the flow of costs in process costing, both physical flow and related cost flow. Calculate equivalent units and cost per equivalent unit of production. Accurately apply process costing to assign costs to work completed during a period.

### Outcome #4: Calculating equivalent units and cost/equivalent unit:

Costs are accumulated for a period of time by process or department. Unit cost is computed by dividing the accumulated costs by the number of units produced in the period. Outcome #4: Calculating equivalent units and cost/equivalent unit If partially complete units remain in process, we must use equivalent units as the divisor to obtain unit costs.

### Process Costing and Equivalent Units:

Equivalent units is a concept expressing a number of partially completed units as a smaller number of fully completed units. Two one-half full pitchers are equivalent to one full pitcher. + = 1 Process Costing and Equivalent Units

### Process Costing and Equivalent Units:

For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period? Process Costing and Equivalent Units

### Process Costing and Equivalent Units:

For the current period, PencilCo started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did PencilCo have for the period? Process Costing and Equivalent Units 10,000 units + (5,000 units × .30) = 11,500 equivalent units

### Cost per Equivalent Unit:

Cost per equivalent unit = Product costs for the period Equivalent units for the period Cost per Equivalent Unit

### Cost per Equivalent Unit:

Now assume that PencilCo incurred \$27,600 in production costs. What was PencilCo’s cost per unit for the period? Cost per Equivalent Unit

### Cost per Equivalent Unit:

Now assume that PencilCo incurred \$27,600 in production costs. What was PencilCo’s cost per unit for the period? Cost per Equivalent Unit \$27,600 ÷ 11,500 equivalent units = \$2.40 per equivalent unit

### Process Costing and Equivalent Units – Example:

Equivalent units may be different for material and conversion at different stages of a process. At completion of Stage 1 of the process, material is 40% complete, but conversion is only 25% complete. Process Costing and Equivalent Units – Example Stage 1 40% of Material 25% of Conversion

### Process Costing and Equivalent Units:

= = 100% 50% Process Costing and Equivalent Units Stage 2 25% of Conversion 60% of Material Stage 1 40% of Material 25% of Conversion + +

### Process Costing and Equivalent Units:

Stage 3 50% of Conversion The process is now complete. Stage 2 25% of Conversion 60% of Material Stage 1 40% of Material 25% of Conversion Process Costing and Equivalent Units 