{"id":3470,"date":"2020-02-21T13:35:59","date_gmt":"2020-02-21T13:35:59","guid":{"rendered":"https:\/\/commerceiets.com\/?p=3470"},"modified":"2020-02-21T13:35:59","modified_gmt":"2020-02-21T13:35:59","slug":"equivalent-production","status":"publish","type":"post","link":"https:\/\/commerceiets.com\/equivalent-production\/","title":{"rendered":"EQUIVALENT PRODUCTION"},"content":{"rendered":"\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_72 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/commerceiets.com\/equivalent-production\/#EQUIVALENT_PRODUCTION\" title=\"EQUIVALENT PRODUCTION\">EQUIVALENT PRODUCTION<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/commerceiets.com\/equivalent-production\/#STEPS_AND_PROCEDURE_OF_COMPUTATION_OF_EQUIVALENT_PRODUCTION\" title=\"STEPS AND PROCEDURE OF COMPUTATION OF EQUIVALENT PRODUCTION\">STEPS AND PROCEDURE OF COMPUTATION OF EQUIVALENT PRODUCTION<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/commerceiets.com\/equivalent-production\/#EVALUATION_IN_DIFFERENT_CASES\" title=\"EVALUATION IN DIFFERENT\nCASES\">EVALUATION IN DIFFERENT\nCASES<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"has-text-align-center wp-block-heading\" id=\"equivalent-production\"><span class=\"ez-toc-section\" id=\"EQUIVALENT_PRODUCTION\"><\/span><strong>EQUIVALENT PRODUCTION<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Equivalent Production represents the production of a <a href=\"https:\/\/commerceiets.com\/process-costing\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"process (opens in a new tab)\">process<\/a> in terms of completed units. In other words it means converting the incomplete production units into its equivalent of complete units. In each process an estimate is made of the percentage completion of any work-in-progress. A production schedule and a cost schedule will then be prepared. The work-in-progress is inspected and an estimate is made of the degree of completion, usually on a percentage basis. It is most important that this estimate is as accurate as possible because a mistake at this stage would affects the stock valuation used in the preparation of final accounts. The formula for equivalent production is:<\/p>\n\n\n\n<p><strong>Equivalent units of work-in-progress = Actual no. of units in process\nof manufacture x Percentage of work completed<\/strong><\/p>\n\n\n\n<p><strong>For example<\/strong>: If\n20% work has been done on the average of 1,000 units still in process, then\n1,000 such units will be equal to 200 completed units. The cost of\nwork-in-progress will be equal to 200 completed units.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"steps-and-procedure-of-computation-of-equivalent-production\"><span class=\"ez-toc-section\" id=\"STEPS_AND_PROCEDURE_OF_COMPUTATION_OF_EQUIVALENT_PRODUCTION\"><\/span><strong>STEPS AND PROCEDURE OF COMPUTATION OF EQUIVALENT PRODUCTION<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>1. Ascertain Equivalent Production in respect of opening\nwork-in-progress, if any. In this case the Equivalent Production is computed by\ntaking into consideration the percentage of work required to finish now in the\nprocess. The following formula is used.<\/p>\n\n\n\n<p><strong>Opening WIP (Units) x % of work needed to complete.<\/strong><\/p>\n\n\n\n<p>2. Find the units introduced and completed and add this to\n(1). It is calculated as follows:<\/p>\n\n\n\n<p><strong>Units completed and transferred \u2013 Opening work-in-progress.<\/strong><\/p>\n\n\n\n<p>3. Convert the equivalent production of closing work-in-progress\nand add to the above. The formula is:<\/p>\n\n\n\n<p><strong>Closing work-in-progress (units) x% of work completed.<\/strong><\/p>\n\n\n\n<p>4. Obtain the total Equivalent Production terms of\nmaterials, labour and overhead separately (if degree of completion is\ndifferent). For this, \u2018Statement of Equivalent Production\u2019 is prepared.<\/p>\n\n\n\n<p>5. Find out the net process costs, element wise- materials,\nlabour and overheads.<\/p>\n\n\n\n<p>6. Ascertain the cost per unit of Equivalent Production for\neach element of cost separately.<\/p>\n\n\n\n<p><strong>Material cost per unit= Material cost\/ Equivalent Production in respect\nof materials<\/strong><\/p>\n\n\n\n<p><strong>Labour cost per unit = Labour cost\/ Equivalent Production in respect of\nlabour<\/strong><\/p>\n\n\n\n<p><strong>Overhead cost per unit = Overhead cost\/ Equivalent Production in\nrespect of overhead<\/strong><\/p>\n\n\n\n<p>For this purpose \u2018Statement of Cost is prepared\u2019<\/p>\n\n\n\n<p>7. Find out the value of opening work-in-progress, finished\nunits and closing work-in-progress. The formula is:<\/p>\n\n\n\n<p><strong>Equivalent Production in respect of materials x Material cost per unit<\/strong><\/p>\n\n\n\n<p><strong>Equivalent Production in respect of labour x Labour cost per unit<\/strong><\/p>\n\n\n\n<p><strong>Equivalent Production in respect of overhead x Overhead cost per unit<\/strong><\/p>\n\n\n\n<p>For this purpose \u2018Statement of Evaluation or Apportionment\u2019\nis prepared. In short, the following three statements are to be prepared:<\/p>\n\n\n\n<p><strong>1. Statement of\nEquivalent Production: <\/strong>This statement shows the number of equivalent\ncompleted units.<\/p>\n\n\n\n<p><strong>2. Statement of Cost:\n<\/strong>This statement is prepared to compute the element-wise cost per equivalent\nunit. For this purpose, the cost of each element is divided by the equivalent\nunits of production of that element.<\/p>\n\n\n\n<p><strong>3. Statement of\nEvaluation:<\/strong> This statement shows the apportionment of the total process\ncost to finished output and work-in-progress of the process.<\/p>\n\n\n\n<h3 class=\"has-text-align-center wp-block-heading\" id=\"evaluation-in-different-cases\"><span class=\"ez-toc-section\" id=\"EVALUATION_IN_DIFFERENT_CASES\"><\/span><strong>EVALUATION IN DIFFERENT\nCASES<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p><strong>I. When there is only\nclosing work-in-progress but with no process losses.<\/strong><\/p>\n\n\n\n<p>Under this case the closing work-in-progress is converted\ninto equivalent units on the basis of estimate as regards degree of completion\no materials, labour and production overhead.<\/p>\n\n\n\n<p><strong>II. When there is\nonly closing work-in-progress but with process losses.<\/strong><\/p>\n\n\n\n<p>In case of normal loss, nothing should be added as equivalent\nproduction. However, abnormal loss should be considered as production of good\nunits completed during the period.<\/p>\n\n\n\n<p><strong>III. When there is\nopening as well as closing work in progress but with no process loss.<\/strong><\/p>\n\n\n\n<p>Sometimes in a continuous process there will be opening as\nwell as closing work in progress which are to be converted into equivalent of\ncompleted units for apportionment of process costs. The procedure of conversion\nof opening work in progress will vary depending upon whether average cost or\nFIFO or LIFO method of apportionment of costs is followed.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>First In\nFirst Out Method [FIFO]: <\/strong><\/li><\/ul>\n\n\n\n<p>In this method, the assumption is that the incomplete units\nfrom the opening stock are completed first and then the units introduced in the\nprocess are completed. The costs added in each process during the current period\nis prorated to the production necessary to complete the opening work in\nprogress, to complete the units added in the process and units in the work in\nprogress. The objective of the first in first out method is to value the\ninventory at the current costs and as such the main problem is to calculate the\nequivalent production under this method.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Average\nMethod: <\/strong><\/li><\/ul>\n\n\n\n<p>Process costs are sometimes computed on the basis of average\ncosts. Where degree of completion of opening work in progress is not given,\naverage method is used. The average process cost is obtained by adding the cost\nof opening work in progress and the cost of units introduced in the process\nduring the current period and dividing this total cost by total equivalent\nunits obtained by adding the number of units completed and equivalent units of\nthe closing work in progress of each element, material, labor and overheads.\nThe main object of average method is to even out the fluctuations in prices and\nhence is used when the prices fluctuate widely during a particular period.<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li><strong>Weighted\nAverage Method: <\/strong><\/li><\/ul>\n\n\n\n<p>If a manufacturing unit is manufacturing two or more\nproducts, which are quite dissimilar to each other, weighted average method is\nused. Under this method, weighted average is computed and used in valuation of\nthe incomplete units.<\/p>\n\n\n\n<p><strong>IV. When there is\nopening as well as closing work-in-progress but with losses.<\/strong><\/p>\n\n\n\n<p>Under this equivalent production units regarding opening and closing work in progress are to be calculated with due adjustment for process losses.<\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><td><strong>Also Study<\/strong><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/cost-accounting\/\">Cost Accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/scope-of-cost-accounting-pdf\/\">Scope of cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/elements-of-cost\/\">Elements of cost<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/types-of-cost\/\">Types of cost<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/material-control-in-cost-accounting-pdf\/\">Material control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/perpetual-inventory-system\/\">Perpetual inventory system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/pricing-of-materials\/\">Pricing of materials<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/bin-card\/\">Bin Card<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/store-ledger\/\">Stores Ledger<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/incentive-plans\/\">Incentive plans<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/overhead\/\">Overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/accounting-treatment-of-idle-time\/\">Idle time<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/system-of-wage-payment-in-cost-accounting\/\">System of wage payment in cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-time-rate-system-and-piece-rate-system\/\">Time rate vs piece rate wage system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-centre\/\">Cost Center<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/labor-turnover\/\">Labour Turnover<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Difference between management accounting and cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/allocation-and-apportionment-of-overheads\/\">Allocation and apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-allocation-and-apportionment-of-overheads\/\">Allocation vs Apportionment of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/absorption-of-overheads\/\">Absorption of overheads<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/over-absorption-and-under-absorption-of-overheads\/\">Over absorption and under absorption of overheads<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/activity-based-costing\/\">Activity based costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-traditional-costing-and-activity-based-costing\/\">Traditional costing vs ABC system<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/reconciliation-of-accounts\/\">Reconciliation of accounts<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/unit-costing\/\">Unit costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-format\/\">Cost sheet format<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-sheet-vs-production-account\/\">Cost sheet vs production sheet<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/job-costing\/\">Job costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/batch-costing\/\">Batch Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-batch-costing\/\">job costing vs batch costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/contract-costing\/\">Contract costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-job-costing-and-contract-costing\/\">Job Costing vs Contract costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/process-costing\/\">Process Costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-costing-vs-job-costing\/\">Process costing vs job costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/joint-products\/\">Joint products<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/by-products\/\">By Product&nbsp;<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\">Equivalent production<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/marginal-costing\/\">Marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/applications-of-marginal-costing\/\">Application of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/cost-volume-profit-analysis\/\">Cost volume profit analysis<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/tools-and-techniques-of-marginal-costing\/\">Tools and techniques of marginal costing<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budget\/\">Budget<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/break-even-point\/\">Break even point<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/process-of-budgetary-control\/\">Process of budgetary control<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/explain-the-advantages-and-limitations-of-budgetary-control\/\">Advantages and limitations of budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/budgetary-control\/\">Budgetary Control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/zero-base-budgeting\/\">Zero base budgeting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/standard-costing\/\">Standard Costing<\/a><\/td><\/tr><tr><td><a href=\"https:\/\/commerceiets.com\/variance-analysis\/\">Variance Analysis<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-standard-costing-and-budgetary-control\/\">Standard costing vs budgetary control<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-management-accounting-and-cost-accounting\/\">Management accounting vs cost accounting<\/a><\/td><td><a href=\"https:\/\/commerceiets.com\/difference-between-financial-accounting-management-accounting-and-cost-accounting\/\">Cost accounting vs financial accounting<\/a><\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<div class=\"wp-block-buttons is-layout-flex wp-block-buttons-is-layout-flex\">\n<div class=\"wp-block-button\"><a class=\"wp-block-button__link\" href=\"https:\/\/www.linkedin.com\/in\/kajal-mahajan-7549b2197\/\" target=\"_blank\" rel=\"noreferrer noopener\">CONNECT ON LINKEDIN<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>EQUIVALENT PRODUCTION Equivalent Production represents the production of a process in terms of completed units. In other words it means converting the incomplete production units into its equivalent of complete units. In each process an estimate is made of the percentage completion of any work-in-progress. A production schedule and a cost schedule will then be&#8230;<\/p>\n<p class=\"more-link-wrap\"><a href=\"https:\/\/commerceiets.com\/equivalent-production\/\" class=\"more-link\">Read More<span class=\"screen-reader-text\"> &ldquo;EQUIVALENT PRODUCTION&rdquo;<\/span> &raquo;<\/a><\/p>\n","protected":false},"author":2,"featured_media":3472,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[187],"tags":[],"class_list":["post-3470","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-cost-accounting"],"_links":{"self":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3470","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/comments?post=3470"}],"version-history":[{"count":0,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/posts\/3470\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media\/3472"}],"wp:attachment":[{"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/media?parent=3470"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/categories?post=3470"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/commerceiets.com\/wp-json\/wp\/v2\/tags?post=3470"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}