A department’s output is always stated in terms of equivalent units of production. Equivalent units can be defined as the number of units that could have produced given the total amount of manufacturing effort expended for the period under consideration.
Why we compute the equivalent units of production?
The answer is very simple because completed units alone will not accurately measure output in a
department since part of the department’s efforts during a period have been expended on units that are only partially complete. To accurately measure output, these partially completed units must also be considered in the output computation. This is done by mathematically converting the partially completed units into fully completed units and then adjusting the output figure accordingly.
Computation of equivalent units of production
A unit would not be transferred out unless it is completed. Thus every transferred out unit is an equivalent unit. Units remaining in, ending work in process inventory, however, are not complete. So to convert the work in process inventory into equivalent units you must have to keep the percentage of completion in the calculation.
Assume that department A of a company had the following data for January 2019.
What is the output in January for department A?
The solution is to calculate the equivalent units of production: