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This post addresses equivalent units in ending inventory.

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Mary Mahr has recently been promoted to production manager, and so she has just started to receive various managerial reports. One of the reports she has received is the production cost report that you prepared. It showed that her department had 1,000 equivalent units in ending inventory. Her department has had a history of not keeping enough inventory on hand to meet demand. She has come to you, very angry, and wants to know why you credited her with only 1,000 units when she knows she had at least twice that many on hand.

Instructions

Explain to her why her production cost report showed only 1,000 equivalent units in ending inventory. Write an informal memo. Be kind and explain very clearly why she is mistaken.

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Solution Summary

The solution provides a sample memo to Mary Mahr explaining why the production cost report showed only 1,000 equivalent units in ending inventory.

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Dear Mary,

I understand you're upset, but let me explain why your department is credited with only 1,000 units. Equivalent units are based on a percentage that is completed. For example, if there are 10,000 units in production and when we count the inventory for ending inventory, if the 10,000 units are 10% ...

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