Question

In: Accounting

1. In order to produce the production cost report,equivalent units are calculated. What are equivalent units...

1. In order to produce the production cost report,equivalent units are calculated. What are equivalent units of production and why is it necessary to calculate Equivalent units of production?

2. Which costing system is more appropriate for a service company to use and please explain why

Solutions

Expert Solution

ANSWER-1) Equivalent units of production is a measure of the productivity of a process with respect to its usage of direct labor, direct materials, or overhead expenses, and an expression of the activity of a process as the number of units that could have been processed during a time frame if complete effort had been applied to units that were started and completed that period. In cost accounting, the equivalent units are computed by multiplying the units in production with the percentage of those units which are complete (100%) or those that are partially completed units or in process.

It is necessary to calculate equivalent units of production to make the work 100% complete and to ensure that it is ready to move to the next stage of production. Moreover the inventory of finished goods may not have been completed in a single time period. It enhances the control available to, and measurement of, factory management. It allows comparison between base and current periods in regard of apparent and accurate change in volume, and change in transfer value. It provide an accurate figure of manufacturing efficiency and output in comparison to physical unit measure of performance

ekkarill92 answered 2 hours ago
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