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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

In process costing, the statement of equivalent production is prepared mainly to:

Equivalent production converts partly finished units into an equivalent number of fully finished units for each cost element. This allows the cost per equivalent unit to be computed and cost to be fairly split between completed output and closing work-in-progress.

  1. AConvert partly completed units into an equivalent number of fully completed units so that cost per unit can be foundCorrect
  2. BAllocate the cost of abnormal gain to the next process
  3. CCompute the selling price of by-products
  4. DFind the number of units lost as normal loss

Explanation

Work-in-progress units are only partly complete, so they are expressed as equivalent whole units for each cost element. Dividing cost by equivalent units gives a fair cost per unit. Normal loss and by-product pricing are handled by other treatments, not by equivalent production.

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