production of a process in terms of completed units

This represents the production of a process in terms of completed units. In other words, it means converting the uncomplete production into its equivalent of completed units. In each process an estimate is made of the percentage completion of any work in progress. A production schedule and a cost schedule will then be prepared. The work in progress is inspected and an estimate is made of the degree of completion, usually on a percentage basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affect the stock valuation used in the preparation of final accounts. The formula of equivalent production is:

Equivalent unit of work in progress =

Actual No. of units in progress of manufacture * percentage of work completed

For example if 70% work has done on the average on 200 units still in process, then 200 such units will be equal to 140 completed units. The cost of work in progress will be equal to 140 completed units.

Calculation of Equivalent Production:

1. Method A – under this method opening work in progress is stated in equivalent completed units by applying the percentage of work needed to complete the unfinished work of the previous period. Then numbers of units started and completed are added. Further equivalent completed units of closing work in progress are also added to get the equivalent production.
2. Method B – under this method units completed during the period are added to the units of closing stock completed during the period and out of the total units, opening stock units completed in previous year are deducted to get the units of equivalent production.
3. Method C – under this method units of uncompleted input are added to the units of incomplete work in opening stock and out of the total units, incomplete work in closing stock are deducted to have units of equivalent production.