Cost Accounting For Dummies
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When cost accounting, after you count the physical units and figuring a method of costing them, put the two together. You use equivalent units to assign real dollar costs to products.

Say you’re a candy manufacturer. You make inexpensive pieces of candy that sell for 20 cents each. So a piece of candy is your product unit. The table displays the movement of physical units for a period.

Candy — Physical Flow of Units (September)
Work in process, beginning inventory (9/1) 400,000
Units started during September 800,000
Units to account for 1,200,000
Completed and transferred out during September 600,000
Work in process, ending inventory (9/30) 600,000
Units accounted for 1,200,000

The formula is:

Beginning inventory WIP + units started during the month = units completed and transferred out + ending inventory WIP

The total units to account for agrees with the total units accounted for. (And it’s a good thing all the WIP candy went out the door, because candy doesn’t improve with age.)

If the formula for units to account for doesn’t balance, stop your analysis and find the error. Otherwise, there’s no point in attaching dollar amounts to the units.

Here are the costs of making candy for the period:

Total costs = cost of beginning inventory + costs added during the period
Total costs = $48,000 + $53,800
Total costs = $101,800

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Kenneth W. Boyd has 30 years of experience in accounting and financial services. He is a four-time Dummies book author, a blogger, and a video host on accounting and finance topics.

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