ACCA Applied Knowledge · Management Accounting · Cost accounting methods
A process starts with 2,000 units of input. At the end of the period, 1,500 units are fully complete and transferred out, and 500 units remain in closing work-in-progress (WIP). The closing WIP is 100% complete for materials and 40% complete for conversion costs. There is no opening WIP and no losses. What are the equivalent units for conversion costs?
The equivalent units for conversion are 1,700. The 1,500 completed units count in full, and the 500 closing WIP units are 40% converted, adding 200 equivalent units. Ignoring partial completion gives 1,500, while treating all units as fully converted gives 2,000.
- A1,500
- B1,700Correct
- C1,900
- D2,000
Explanation
Equivalent units for conversion = completed units 1,500 + (500 x 40%) = 1,500 + 200 = 1,700. The figure of 2,000 treats the closing WIP as fully converted, and 1,900 wrongly uses 100% for materials-type completion on a partial basis. 1,500 ignores the work done on closing WIP.
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