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.

Equivalent Units

A term used in cost accounting to represent a conversion of partially completed goods into a number of fully completed units.

Direct Materials

Raw materials that are directly traceable to the production of a specific good or service and directly incorporated into the final product.

Direct Labor

The wages paid to workers who are directly involved in the production of goods or the provision of services.