Question

If a department that applies process costing starts the reporting period with 40,000 physical units that were 80% complete with respect to direct materials and 50% complete with respect to direct labor, it must add 8,000 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them.

a. true
b. false

Answer 1

True

Step-by-step explanation:

Equivalent units are notional whole units which represent incomplete work and are used to apportion cost between work progress and completed work. These units are determined as follows:

Equivalent units = Degree of work done(%) × units of inventory

Equivalent units

Direct material:

Balance of work = 100-80 = 20%

Equivalent of work to be added = 20% × 40,000 = 8,000

Labour

Balance of work = 100-50= 50%

Equivalent of work to be added =50% × 40,000 = 20,000 units

Equivalent of work to be added(units)

Material 8000

Labour 20,000