Q7RQ - Horngren'S Financial And Managerial Accounting

Question

Question: Why is the calculation of equivalent units of production needed in a process costing system?

Step-by-Step Solution

Answer

Answer:

The equivalent units of production needed in a process costing system. It is so because the company is required to know the cost of each single unit of the product to decide the selling proce per unit.

Step 1: Process costing system

Under the process costing system, cost is calculated for the entire process of the production. It is used by the companies producing large number of similar goods.

Step 2: Unit cost of the products

The unit cost of the product is required to be calculated. It is calculated by dividing the total cost of production with the total number of units produced during the year. Hence, the company is needed to know the equivalent units of production