Equivalent Units – FIFO Method

Equivalent units under FIFO method of process costing are the number of finished units that could have been prepared in a process during a period had there been no unfinished units, either in opening WIP or closing WIP.

Under the FIFO cost flow assumption, it is assumed that the costs that enter first in the department exit first. The consequence of this assumption is that the cost of units transferred out first includes the cost of opening WIP and then the cost of units added during the period. The cost of opening WIP is carried directly to the units transferred out. Equivalent units are relevant only for costs incurred during the period: which includes costs incurred on completing the opening WIP (i.e. the unfinished part), cost incurred on units started/added and transferred out and cost incurred on units in closing work in process.


Equivalent units under FIFO method are calculated using the following formula:

Equivalent units for each cost component = (100% − A) × B + C + D × E

A = percentage of completion at the end of last period
B = units in opening work in process
C = units added/started and transferred out
D = percentage of completion of units in closing work in process
E = units in closing work in process


Calculate equivalent units under FIFO method using the data given below:

Units in opening work in process10,000
Units added190,000
Units transferred out195,000
Units in closing work in process5,000
Percentage of completion of opening WIP–direct materials80%
Percentage of completion of opening WIP–conversion costs40%
Percentage of completion of closing WIP–direct materials100%
Percentage of completion of closing WIP–conversion costs60%


Direct MaterialsConversion Costs
Units in beginning WIP (A)10,00010,000
% of completion of beginning WIP in previous period (B)80%40%
% of beginning WIP completed this period [C=100%-B]20%60%
Equivalent units in beginning WIP [D=A×C]2,0006,000
Units started and completed in current period185,000185,000
Units closing WIP (E)5,0005,000
% of completion of closing WIP (F)100%60%
Equivalent units in closing WIP (G=E×F)5,0003,000
Total equivalent units192,000194,000

by Obaidullah Jan, ACA, CFA and last modified on

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