Equivalent units
from class:
Managerial Accounting
Definition
Equivalent units measure the work done during a period, expressed in fully completed units. This concept helps allocate costs accurately in process costing systems.
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5 Must Know Facts For Your Next Test
- Equivalent units combine partially completed units into full units to standardize cost allocation.
- They are essential for calculating the cost per unit in process costing systems.
- The calculation involves determining the stage of completion for both materials and conversion costs.
- Equivalent units are used to apportion both direct materials and conversion costs (labor and overhead).
- This metric facilitates comparisons across periods by normalizing different levels of production completion.
Review Questions
- Why are equivalent units important in process costing?
- How do you calculate equivalent units for conversion costs?
- What role do equivalent units play in determining the cost per unit?
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