8.5 Valuing closing work in progress
WIP equivalent units (EUS)
Equivalent unit
The output for a period
● Completed product
● Work-in-process product
Equivalent units
Once processing has started on a unit of output, to the extent that it remains in an uncompleted state it can be expressed as a proportion of a completed unit.
Extension of the equivalent units approach
It is unlikely that all inputs to production will take place at the same time.
Materials are frequently added at the beginning of a process, and so any closing WIP will have 100% of their direct material content. For other cases, materials might be added gradually throughout the process, in which case closing inventory will only be a certain percentage complete as to material content.
Direct labour and production overheads are assumed to be incurred at an even rate throughout the process. When we refer to a unit that is 50% complete, we mean that it is half complete for labour and overhead, although it might be 100% complete for materials.
Example 6
Inputs = 1000 units at the total material cost of $6200, labour and overhead of $2850
Finished goods = 800 units
Closing WIP = 200 units, with 100% complete for materials and 25% complete for labour and overhead.
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