Skip to Content
Principles of Accounting, Volume 2: Managerial Accounting

# 5.4Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage

Principles of Accounting, Volume 2: Managerial Accounting5.4 Explain and Compute Equivalent Units and Total Cost of Production in a Subsequent Processing Stage

In many production departments, units are typically transferred from the initial stage to the next stage in the process. When the units are transferred, the accumulated cost per unit is transferred along with them. Since the unit being produced includes work from all of the prior departments, the transferred-in cost is the cost of the work performed in all earlier departments.

### Step Four: Allocating the Costs to the Units in the Finishing Department

Now you can determine the cost of the units transferred out and the cost of the units still in process in the finishing department. For the goods transferred out, simply take the units transferred out times the sum of the two equivalent unit costs (materials and conversion) because all items transferred to the next department are complete with respect to materials and conversion, so each unit brings all its costs. But the ending WIP value is determined by taking the product of the work in process materials units and the cost per equivalent unit for materials plus the product of the work in process conversion units and the cost per equivalent unit for conversion.

Citation/Attribution

Want to cite, share, or modify this book? This book is Creative Commons Attribution-NonCommercial-ShareAlike License 4.0 and you must attribute OpenStax.

Attribution information
• If you are redistributing all or part of this book in a print format, then you must include on every physical page the following attribution:
Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
• If you are redistributing all or part of this book in a digital format, then you must include on every digital page view the following attribution:
Access for free at https://openstax.org/books/principles-managerial-accounting/pages/1-why-it-matters
Citation information

© Dec 20, 2019 OpenStax. Textbook content produced by OpenStax is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike License 4.0 license. The OpenStax name, OpenStax logo, OpenStax book covers, OpenStax CNX name, and OpenStax CNX logo are not subject to the Creative Commons license and may not be reproduced without the prior and express written consent of Rice University.