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What is the equivalent unit that is used on FIFO and Weighted average method? Why do...

What is the equivalent unit that is used on FIFO and Weighted average method? Why do we calculate equivalent unit for ending work-in-process?

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Answer #1

In FIFO method equivalent units are determined on the basis of first in first out.

That means if there is opening WIP on which some part of work is done in past the balance work will ne done in next year . if 100 units are transfered and opening WIP are 30 units. On which 40% work is done the balance 60 % work will be done now. Out of 100 finished units 30 units constitute from opening WIP as First in first out basis

Where as in weighted avg method it is completely opposite

And the need for equivalant cost per unit is to determine the value of closing WIP.

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