4 Under what circumstances would the number of equivalent un

4. Under what circumstances would the number of equivalent units of materials differ from the number of equivalent units of labor and overhead in the same department in the same period? Under what circumstances would they be the same? 5. Units are usually assumed to be at the same stage of completion for both labor and overhead. What is the reason for this assumption? Would an automobile plant that makes specialty race cars use job costing or process costing? Would an automobile plant that makes all-terrain vehicles use job costing or process costing? Explain your answer 6.

Solution

Question 4:

Equivalent units of material differ from the number of equivalent units of labor and overhead in the same department in the same period because while the material is generally added at the beginning of the period, labor and overhead are added at some later stage in the same period. In simple words, the equivalent units of material differ from equivalent units of labor and overhead because they are added at different points of time in the production process.

Equivalent units of materials, labor and overhead would be same for units completed and transferred out as they would have been 100% completed (with respect to all 3) before getting transferred to finished goods.

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Question 5:

The reason for the assumption is that both labor and conversion are assumed to added at the same time in the production process. Therefore, the work with respect to both start at the same time and is at the same level of completion at any point of time.

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Question 6:

An automobile plant that makes specialty race cars would use job costing. It is because each order would be treated as a separate job as customization may be required in case of specialty race cars. The requirements of each customer may be different and therefore, process costing following a streamlined and predefined process may not be suitable for such a plant.

On the other hand, an automobile plant that makes all terrain vehicles will be use process costing. It is because the cars would be homogeneous in nature, that is, having similar features and will be manufactured in lots using the same standard process. No customization is made with respect to vehicles so manufactured and therefore, job costing wouldn\'t be suitable for such a plant.