If a department that applies process costing starts the reporting period with 40,000 physical units that were 80% complete with respect to direct materials and 50% complete with respect to direct labor, it must add 8,000 equivalent units of direct materials and 20,000 equivalent units of direct labor to complete them. a. true
b. false

True

Explanation:

Equivalent units are notional whole units which represent incomplete work and are used to apportion cost between work progress and completed work. These units are determined as follows:

Equivalent units = Degree of work done(%) × units of inventory

Equivalent units

Direct material:

Balance of work = 100-80 = 20%

Equivalent of work to be added = 20% × 40,000 = 8,000

Labour

Balance of work = 100-50= 50%

Equivalent of work to be added =50% × 40,000 = 20,000 units

                                    Equivalent of work to be added(units)

Material                               8000                                  

Labour                               20,000