Dictionary of Accounting Terms: equivalent units
equivalent units
number of fully completed units considered to be equivalent to a greater number of partially completed units. For example, if 1000 units are in work-in-process (WIP)at the end of the period and are considered 80% complete, the equivalent production is 800 units. The equivalent unit cost of manufacturing an item equals the total cost divided by the equivalent units. If the total cost of manufacturing the item was $2400, the unit cost would be $3 ($2400/800). Equivalent units are determined separately for direct materialand conversion cost. If 3000 units in ending work-in-process are 70%complete as to direct material and 90% complete as to conversion, the equivalent units are 2100 for direct material and 2700 for conversion.
