Page 213 - F2 - MA Integrated Workbook STUDENT 2018-19

Process costing

Work in progress

Equivalent units (EU)

 Closing work in progress and completed units need to be valued in
a fair way so we use the concept of equivalent units

Equivalent units = Number of physical units × percentage completion.

At the end of a period there are 1,000 units that 50% complete, this is the
equivalent of 1,000 × 50% = 500 EU

Different degrees of completion

 A process involves direct materials and conversion costs (direct
labour and overheads)

 Usually all the material is input at the beginning of the process,
whereas the conversion is ‘added’ as the product advances through
the process. This means there may be a different amount of EUs
for conversion and materials i.e. different degrees of completion.

The cost per EU

 The cost per EU will be calculated and applied to the completed
units, and CWIP based on the number of EU.

 Cost per EU = total cost for materials or conversion / total EU for
materials or conversion

Closing work in progress units

 Process costing is used for products where there are incomplete
units at the end of a time period – closing work in progress (CWIP)

Opening work in progress

 Process costing is used for products where there are m units at the
start of a time period – opening work in progress (OWIP)

 EUs are used to ensure the costs to complete the OWIP are fairly
shared with the completed units and the CWIP

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