How to use the process costing equivalent units calculator
- Enter the units completed and transferred out, and the units still in ending work in process.
- Enter how complete the ending units are for materials and for conversion (labor and overhead), as percents.
- Enter the cost already in work in process at the start and the cost added this period, for materials and for conversion.
- Read the equivalent units, the cost per equivalent unit, the cost transferred out and the cost left in work in process.
Formula
equivalent units = completed units + ending units x percent complete (for each cost element)
cost per equivalent unit = (beginning WIP cost + cost this period) / equivalent units
ending WIP cost = ending units x percent complete x cost per equivalent unit, summed over the elements
cost transferred out = total cost - ending WIP cost
This is the weighted average method, which treats cost in the opening work in process as if it were added this period. The cost transferred out is found as the total minus the ending work in process, so the two always reconcile to the cent.
A department with half-finished units
A department completed 18,000 units and has 4,000 units in ending work in process. They are 100% complete for materials and 50% complete for conversion. Materials cost $440,000 and conversion cost $300,000, with no opening work in process.
Equivalent units are 18,000 + 4,000 = 22,000 for materials and 18,000 + 2,000 = 20,000 for conversion. Cost per equivalent unit is 440,000 / 22,000 = $20 for materials and 300,000 / 20,000 = $15 for conversion. Ending work in process costs 4,000 x $20 + 2,000 x $15 = $110,000, and the cost transferred out is 18,000 x $35 = $630,000. Together that is the whole $740,000.
Why equivalent units
A half-finished unit has used all its materials but only half its labor. Counting it as a whole unit would overstate the work done, and ignoring it would understate it. Equivalent units convert partly finished work into the number of whole units it equals, so cost can be spread fairly.
The finished units move on into the schedule in the Cost of Goods Manufactured Calculator. To check the overhead behind the conversion cost, see the Over and Under Applied Overhead Calculator.
Percent complete
Materials are often added at the start or at one point in the process, so their percent complete may be 100% or 0%. Conversion costs build gradually. Enter the percent for each element separately, because they usually differ.
Assumptions and limits
- Only the weighted average method is modeled. First-in first-out, which separates opening work in process, is not included.
- There is one department and no lost or spoiled units.
- Beginning work in process cost is included in the cost to account for, and its units are inside the completed units.
- Cents are rounded half up, with the ending work in process rounded first and the transferred cost taken as the rest.
- The figures are for planning and teaching and are not accounting advice.
Frequently asked questions
What is conversion cost?
It is direct labor plus manufacturing overhead, the cost of turning materials into finished product.
Do I include opening work in process units in the completed units?
Yes. With the weighted average method, units finished this period count as completed whether they started last period or this one.
Why are there two equivalent unit numbers?
Materials and conversion are added at different rates, so the same ending units equal a different number of whole units for each.
What if materials are added at the end of the process?
Enter 0% for the materials percent of the ending units. They have used none of the materials yet.