equivalent units (fifo and wacm)
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7/25/2019 Equivalent Units (FIFO and WACM)
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Equivalent Units – FIFO Method
Equivalent units under FIFO method are the number of nished units that
could have been prepared in a process during a period had there been no
unnished units, either in opening WI or closing WI!
Under the FIFO cost "o# assumption, it is assumed that the costs that enter
rst in the department e$it rst! %he consequence of this assumption is that
the cost of units transferred out rst includes the cost of opening WI and
then the cost of units added during the period! %he cost of opening WI is
carried directl& to the units transferred out! Equivalent units are relevant onl&
for costs incurred during the period' #hich includes costs incurred on
completing the opening WI (i!e! the unnished part), cost incurred on units
started*added and transferred out and cost incurred on units in closing #or+
in process!
Formula
Equivalent units under FIFO method are calculated using the follo#ing
formula'
Equivalent units for each cost component (-../ 0 1) 2 3 4 5 4 6 2 E
Where,
1 percentage of completion at the end of last period
3 units in opening #or+ in process
5 units added*started and transferred out
6 percentage of completion of units in closing #or+ in process
E units in closing #or+ in process
E$ample
5alculate equivalent units under FIFO method using the data given belo#'
Units in opening #or+ in process -.,...
Units added -7.,...
Units transferred out -78,...
Units in closing #or+ in process 8,...
ercentage of completion of opening WI–direct materials 9./
ercentage of completion of opening WI–conversion costs :./
ercentage of completion of closing WI–direct materials -../
ercentage of completion of closing WI–conversion costs ;./
<olution
7/25/2019 Equivalent Units (FIFO and WACM)
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6irect
Materials
5onversion
5osts
Units in beginning WI (1) -.,... -.,...
/ of completion of beginning WI in previous
period (3)9./ :./
/ of beginning WI completed this period
=5-../>3?@./ ;./
Equivalent units in beginning WI =6125? @,... ;,...
Units started and completed in current period -98,... -98,...
Units closing WI (E) 8,... 8,...
/ of completion of closing WI (F) -../ ;./
Equivalent units in closing WI (AE2F) 8,... B,... %otal equivalent units -7@,... -7:,...
Equivalent Units – Weighted 1verage Method
Equivalent units are the number of nished units that #ould have been
prepared had there been no partiall& completed units in a process!
%he concept of equivalent units is applicable to process costing! <ince
processes are continuous, #hen a cost of production report is prepared, the
unnished units in the opening #or+ in process or closing #or+ in process are
assigned an estimated percentage of completion! 3ased on this percentage
of completion, number of equivalents units is calculated in order to nd cost
per completed unit!
Formula
%he calculation of equivalent units depends on the cost "o# assumption
used i!e! the calculation is diCerent for rst>in>rst>out and #eighted
average! In the #eighted average method, total equivalent units for the
process for a period are calculated using the follo#ing formula!
%otal equivalent units for a cost component 1 4 3 2 5
Where
1 units transferred out to the ne$t department*nished goods
7/25/2019 Equivalent Units (FIFO and WACM)
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3 units in closing #or+ in process
5 percentage of completion #ith respect to the relevant cost component
E$ample
5alculate total equivalents units using the follo#ing information!
Units in opening #or+ in process -.,...
Units added -7.,...
Units transferred out -78,...
Units in closing #or+ in process 8,...
/ of completion of closing WI–direct materials -../
/ of completion of closing WI–conversion costs ;./
<olution
%otal equivalent units–direct materials -7.,... 4 8,... 2 -../ -78,...
%otal equivalent units–conversion costs -7.,... 4 8,... 2 ;./ -7B,...