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This memo addresses the concern regarding the production cost report and why you were only credited with only 2,000 units equivalent units in ending inventory. The key question relayed to me is why the credited amount was not considerably higher compared to what you took into consideration earlier. The main reason why this is the case is linked to process costing and the equivalent units of production. There is usually a confusion between the units partially completed and the units totally completed. Basically, equivalent units of production are utilized by a manufacturer for the expression of partially completed units of product with respect to finished units. They key aim of utilizing equivalent units is to have the ability of apportioning the costs of production to completed units as well as partially completed units held in work process. In essence, the notion of equivalent units takes into account articulating a number of partially completed units as a lesser number of fully completed units. This is done for the reason that it is much simpler to do accounting for whole units rather than parts of a unit. The key reason why you were credited with only 2,000 units is because the production department has several times in part not been keeping sufficient inventory...
Using the method of weighted average, the equivalent units happen to be computed on two aspects. First, there is the number of units finished and transferred outside and secondly there is the ending work units inside process inventory. It is imperative to note that the units finished and moved are deemed to be completed units and, at all times, will be hundred percent complete for the computation of equivalent units for direct goods and labor, and also overheads. On the other hand, with respect to the ending work units in process, then the units that are unfinished are multiplied by a percentage of completion. Notably, the percentage of completion can be dissimilar for direct goods and labor, and also the overheads.
On the other hand, under the FIFO method of costing, equivalent units are delineated as the number of completed units that may have been finished within a process and timeframe in the event that there were no unfinished units, either in the opening work process or closing work process. The key supposition made in…
References
Drury, C. M. (2013). Management and cost accounting. New York: Springer.
Obaidullah, J. (2013). Equivalent Units – FIFO Method. Accounting Explained. [Online]. Retrieved March 22, 2018 from: https://accountingexplained.com/managerial/cost-systems/equivalent-units-fifo
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