The Weighted-Average Method of Equivalent Units of Production

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  • 0:03 Weighted-Average Method
  • 1:03 How To Use It
  • 1:40 Example
  • 3:06 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught history, and has an MA in Islamic law/finance. He has since founded his own financial advice firm, Newton Analytical.

Have a bunch of units that are only half-finished at the end of the accounting period? Then chances are you're going to want to know more about the weighted-average method of finding equivalent units of production.

Weighted-Average Method

Companies rarely finish one unit of production before they start another. And they don't just work to a certain point and then go home for the rest of the month. Instead, companies are always working on production, and there are units of production that may or may not be complete when the time comes for a company to perform its accounting. So what's a company to do? Does it just ignore the incomplete units? In that case, there would be a problem. It would look like some months were especially productive for the company, when there were actually just lots of units that were half-done from the month prior, and some months that look, well, wasted in comparison. Needless to say, neither would be fun for a manager to have to explain time and time again.

Luckily, there is a solution. By using the weighted-average method of equivalent units of production, managers can include units that have already entered production in their activity reports. In other words, they can more easily show just how much work was actually done.

How to Use It

Finding the number of equivalent units by using the weighted-average method of production is pretty straightforward. First of all, take the number of units that are still in production at the end of a period. Then multiply that number by the percentage that those units are from being complete. In cases where units are at different points of completion, simply use the average progress of those units. This gives you the number of equivalent units. This process is known as conversion. As you see it, it is effectively a measure of how many units you could have completed had you focused solely on finished units and not on continuous production.

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