Robert Reas What is a process cost system? What are equivalent units? Why do we need to calculate equivalent units? Why do work in process accounts in process cost systems have ending balances? What is a process cost system? A process cost system is an accounting system used by companies that manufacture large numbers of identical units. One product cannot be distinguished from another product. Under this system, costs are accumulated in each department through which the product passes. Show
top What are equivalent units? Equivalent units represent the number of units that could have been completed, from beginning to end of manufacture, using the costs incurred for the period. They are calculated for both direct materials costs and conversion costs. The calculation of direct materials equivalent units and conversion cost equivalent units consist of three parts: beginning inventory, units transferred in and completed during the month, and ending inventory. When calculating equivalent units, keep in mind that it is based upon the work done during the current period. To illustrate: Smith Company's Work in Process-Baking Department units in October are as follows:
Materials are placed in production at the beginning of the process To calculate materials in production at the beginning of the process
To calculate conversion units:
top Why do we need to calculate equivalent units? Equivalent units must be calculated in order to allocate manufacturing costs to both the completed units and the units still in inventory. top Why do work in process accounts in process cost systems have ending balances? Once a department finishes one batch of a product, it immediately begins producing the next batch. There is no idle time. The manufacturing process is ongoing or continuous. At the end of a period, there will usually be unfinished units in inventory. top Copyright © 2005 South-Western. All Rights Reserved. Question: Video Answer:  Get the answer to your homework problem. Try Numerade free for 7 days University Of Engineering And Technology Peshawar Pakistan We don’t have your requested question, but here is a suggested video that might help. Related QuestionDescribe the distinctive characteristic of FIF0 computations in assigning costs to units completed and to units in ending work in process.
DiscussionYou must be signed in to discuss. Video TranscriptAlright, all right. We will discuss the papal competitions here. Right, that's correct. The cost of the previous accounting periods were assigned to them. Right, right? The cast of the previous, previous accounting, previous accounting period was assigned. Right, that's correct. The previous accounting period. Right, that's correct. equivalent units in beginning work in process inventory to the past units completed and transferred out of the process and assign the cast up equal into units, work around during the current period was passed to completely beginning inventory. Right, right? To start in complete new units and to end the work with two units. It's ending the working process. Right, the process is working. The process went to rewrite. The weighted average method cast units were completed and transferred out while the same rich cast ended the working process. Right, right? People computations are distinctive because they are. People are competing with computation. Right, right? It was our best computation. Thank you for your kind words. Right, that's correct. Why is the calculation of equivalent units necessary?Calculating the equivalent units of production can help a company understand how much work and money they have put into their manufacturing process. Specifically, it's a way to understand how much money, material and labor have been invested into items that are partially complete.
What is the importance of calculating equivalent production units in process costing?An average cost per unit is determined by dividing the total cost by the total equivalent units, to ascertain the value of the units completed and units in process. This method is useful when prices fluctuate from period to period.
How is cost equivalent value calculated?Essentially, you'll need to divide the net present value (NPV) of the asset by the present value of an annuity factor:. Equivalent Annual Cost = NPV / A(t,r) ... . A(t,r) = (1 – (1/(1+r)^t) / r. ... . Equivalent Annual Cost = (Asset Price x Discount Rate) / (1 – (1 + Discount Rate)^-n). What is meant by equivalent units of production and why are they important when a process cost accounting system is used?Definition of Equivalent Unit of Production
Basically the fully completed units and the partially completed units are expressed in terms of fully completed units. Equivalent units are used in the production cost reports for the producing departments of manufacturers using a process costing system.
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Equivalent unit calculations are necessary to allocate manufacturing costs between
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