---
title: "Equivalent units"
description: "What equivalent units of production are, how to calculate them for materials and conversion costs, weighted average vs FIFO, and a process costing example."
canonical: https://ledgeriano.com/glossary/equivalent-units
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Equivalent units

> What equivalent units of production are, how to calculate them for materials and conversion costs, weighted average vs FIFO, and a process costing example.

Equivalent units express the work done on partly finished units in process costing as the number of fully finished units that the same effort would have produced. They let a process department divide its costs fairly between units completed during the period and units still in progress, separately for materials and for conversion costs.

Materials and conversion (labour plus overhead) are usually added at different times, so each gets its own count. If all material goes in at the start, 2,000 units in progress are 100% complete for materials. If they are 40% through the process, they represent 800 equivalent units of conversion.

Under the weighted average method, equivalent units are units completed plus the equivalent units in ending WIP, and opening WIP costs are averaged with current costs. Under FIFO, the work done this period on opening WIP is counted separately, so the cost per unit reflects only current period costs.

In [Ledgeriano](https://ledgeriano.com/guides/inventory-cost-accounting) process costing supports both methods, transferred-in costs from earlier departments and normal and abnormal spoilage.

```
EU (weighted average) = Units completed + Ending WIP units × % complete
Cost per EU = (Opening WIP cost + Current costs) ÷ EU
```

## Example: one department, one month

A department starts 10,000 units, completes 8,000 and has 2,000 in progress, 100% complete for materials and 40% for conversion. Materials cost 50,000 and conversion 44,000.

|  | Materials | Conversion |
| --- | --- | --- |
| Equivalent units | 8,000 + 2,000 = 10,000 | 8,000 + 800 = 8,800 |
| Cost per equivalent unit | 50,000 ÷ 10,000 = 5.00 | 44,000 ÷ 8,800 = 5.00 |
| Completed units (8,000) | 40,000 | 40,000 |
| Ending WIP | 10,000 | 4,000 |

### Why calculate equivalent units separately for materials and conversion?

Because they are added at different stages. Using one percentage for both would overcharge or undercharge the units in progress.

### When does FIFO give a different answer from weighted average?

Only when there is opening WIP and unit costs changed from last period. Without opening WIP both methods give the same result.

Guide: https://ledgeriano.com/guides/inventory-cost-accounting