When a factory runs a process at month-end, some units are only half-done. You can't just ignore them — they've consumed resources. But you also can't treat 200 half-finished units the same as 200 finished units. That's exactly the problem Equivalent Units of Production (EUP) solves: it converts partially completed units into a notional number of fully completed units, so you can calculate a fair cost per unit.
The core formula is simple: EUP = Completed Units + (Closing WIP Units × % Completion). But here's the twist that trips most students — materials and conversion costs (labour + overheads) almost always have different completion percentages. Why? Because in most processes, raw material is introduced at the start (so closing WIP is 100% complete for material), while labour and overhead are added gradually (so closing WIP might be only 40% complete for conversion). Always check the question for this split.
There are two methods for handling Opening WIP: the Weighted Average (WA) method and the FIFO method. In WA, you lump opening WIP together with current period output — simpler, and by far the more exam-common method at CA Inter level. In FIFO, you first complete the opening WIP and account for the work done on it this period only — more accurate but more calculation-heavy. The ICAI May 2026 syllabus tests both, but WA appears more frequently in 8–10 mark questions. In WA, EUP = Units Completed & Transferred + (Closing WIP × % Completion). In FIFO, EUP = (Opening WIP Units × % work remaining) + Units started & completed + (Closing WIP × % completion). Once you have EUP for each cost element, divide the total cost for that element by its EUP to get cost per equivalent unit — then value closing WIP and transferred units using these rates. This is asked frequently as an 8-mark question in Paper 4.