CA Intermediate · Cost and Management Accounting · Process & Operation Costing
In process costing, which of the following best describes 'equivalent units' of production?
Equivalent units are the number of fully completed units that the effort put into partly finished units equals. They convert incomplete work-in-progress into whole-unit terms, allowing cost per equivalent unit to be computed and costs fairly split between finished output and closing work-in-progress.
- AThe number of units physically transferred to the next process
- BThe number of completely finished units that the work done on partly finished units is equal toCorrect
- CThe total of opening work-in-progress and units introduced
- DThe number of units rejected as normal loss in the process
Explanation
Equivalent units convert partly completed units into the number of fully completed units representing the same work, so that cost per unit can be computed. Transferred units are only one component, and units introduced or normal loss do not express work done.
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