Q13RQ - Horngren'S Financial And Managerial Accounting

Question

Most companies using a process costing systems have to calculate more than one EUP. Why? How many do they have to calculate?

Step-by-Step Solution

Answer

The companies using the process costing system have to calculate more than one EUP. It is so because in the process costing there is more than one processing department, so the company is required to compute the EUP of each department. It is computed by multiplying the number of units in the process with the completion percentage.

Step 1: Equivalent Unit of Production

Equivalent unit of production is calculated by the companies to measure the direct materials, direct labor, and the manufacturing overhead incurred on the partially completed units during the year and to express them in terms of fully completed units of output.

Step 2: Calculation of EUP

Equivalent unit of production is computed to measure the cost of direct material, direct labor, and manufacturing cost. If the company is using the process costing system, then the company is required to compute the EUP for each processing department. It is computed as follows:

$\mathbf{ }\mathbf{EUP}\mathbf{ }\mathbf{for}\mathbf{ }\mathbf{process}\mathbf{1}\mathbf{ }\mathbf{department}\mathbf{=}\mathbf{Number}\mathbf{ }\mathbf{of}\mathbf{ }\mathbf{units}\mathbf{\times }\mathbf{Completion}\mathbf{\%}$