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ACCA Applied Knowledge · Management Accounting · Cost accounting methods

Which statement about equivalent units in process costing is correct?

Equivalent units convert partly completed units into the number of fully completed units representing the same amount of work done. They are needed when closing work-in-progress exists, and they can differ between materials and conversion because completion levels differ.

  1. AEquivalent units convert partly completed units into the number of fully completed units that the same effort would produceCorrect
  2. BEquivalent units are always the same for materials and conversion costs
  3. CEquivalent units are used only when there is no closing work-in-progress
  4. DEquivalent units ignore the degree of completion of closing inventory

Explanation

Equivalent units express partly finished output as the number of whole units that would have required the same input. Materials and conversion often differ because their completion levels differ. They are needed precisely when closing work-in-progress exists.

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