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Equivalent production units – meaning.

Equivalent Production Units represents the production of a process in terms of complete units. In other words, it means converting the incomplete production into its equivalent of complete units. The term equivalent unit means a notional quantity of completed units substituted for an actual quantity of incomplete physical units in progress when the aggregate work content of the incomplete units is deemed to be equivalent to that of the substituted quantity. The principle applies when operating costs are apportioned between work in progress and completed units.

Equivalent units of work in progress = Actual no. of units in progress x Percentage of work completed

The equivalent unit should be calculated separately for each element of cost (viz. material, labor, and overheads) because the percentage of completion of the different cost components may be different.

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