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Process Costing and Equivalent Units in Accounting
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Process Costing and Equivalent Units in Accounting
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In the production, equivalent units is a concept of cost accounting which is applied to the work-in-process inventory at the end of the period (Horngren, 2011). It is considered as the completed units of a product that an organization could theoretically have manufactured, given the amount of direct materials, direct labor and manufacturing overhead costs occurred for that period for the products not yet completed (Drury, 2012). As for example, if it is observed that 100 units of a company is in process but they have only expended 30% of the processing costs, then the company should consider 30 equivalent units of production.
Equivalent units is applied in deriving the process cost related with the manufacturing of a product (Lanen, Anderson and Maher, 2013). This concept has no elation with the operational perspective (Maritz, 2013). This concept is also not important to derive any other cost rather than the process costing.
In this concept, all costs are stated separately such as cost of direct material and other manufacturing expenses.

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