Asked by Alexandra Ivars on Jun 03, 2024
Verified
Equivalent units should be computed separately for direct materials and conversion costs.
Direct Materials
Raw materials that are directly used in the production of a product and can be easily traced to the finished product.
Conversion Costs
Sum of labor costs and overhead expenses associated with the transformation of raw materials into finished goods.
- Understand the principle of equivalent units and their significance in allocating costs within process costing.
- Acquire knowledge on the calculation and relevance of equivalent production units.
Verified Answer
JA
Junior AndaluzJun 08, 2024
Final Answer :
True
Explanation :
Equivalent units are calculated separately for direct materials and conversion costs because they have different stages of completion in the production process. Direct materials are typically added at the beginning of the production process, while conversion costs (such as labor and overhead) are added during the production process. Therefore, it is necessary to calculate equivalent units separately for each to accurately measure the total production during a specific period.
Learning Objectives
- Understand the principle of equivalent units and their significance in allocating costs within process costing.
- Acquire knowledge on the calculation and relevance of equivalent production units.
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