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Chapter 08 - Process-Costing Systems McGraw-Hill/Irwin ? 2009 The McGraw-Hill Companies, Inc. 8-PAGE 6 Solutions Manual 8- PAGE 40 Chapter 8 Process-Costing Systems ANSWERS to Review Questions Equivalent units are computed in process costing because it enables companies to assign costs to whole units rather than partial units. Equivalent units represent the amount of work actually performed on products not yet complete translated to the work required to complete an equivalent number of whole units. For example, four units were started at the beginning of a month and each was 25 percent complete at the end of the month. The work performed would be considered equivalent to the work performed to complete one whole unit. This calculation allows companies to assign costs to one whole unit rather than four partially completed units. Using the basic cost flow equation, rearrange the terms to solve for the unknown beginning inventory. From BB + TI – TO = EB, we have: Beginning Inventory + Transfers In – Transfers Out = Ending Inventory. Rearranging yields: Beginning Inventory = Transfers Out + Ending Inventory – Transfers In 8.3 With FIFO costing, the units in the beginning inventory are transferred out first. These beginning inventory units carry with them the costs incurred in a previous period plus the costs incurred this period to complete the beginning inventory. Units started and completed during the period are charged out using all current period costs. While such a distinction is made by the department transferring the units out, the department receiving the units usually ignores the distinction in costs incurred in the prior department. 8.4 Under FIFO costing, the equivalent units represent only the work done in the current period. Under weighted-average costing, the equivalent units represent the work associated with all of the costs charged to work in process regardless of the period in which those costs were