Equivalent units belongs to a cost accounting concept that is applied in process cost for cost calculations. It has no relevance from an operational perspective, nor is it useful for any other type of cost derivation other than process costing. When the financial department of a company assigns a cost to equivalent units of production, it typically assigns either the weighted average cost of the beginning inventory plus new purchases to the direct materials, or the cost of the oldest inventory in stock (known as the first in, first out, or FIFO, method). The weighted average method is used to assign the average cost of production to a product. Weighted average costing is commonly applied in situations where: 1) Inventory items are so intermingled that it is impossible to assign a specific cost to an individual unit. 2) The accounting system is not sufficiently sophisticated to track FIFO or LIFO inventory layers. 3) Inventory items are so commoditized (i.e, identical to each other) that there is no way to assign a cost to an individual unit. The weight average costing method is so important for system. Firstly, the net result of using weighted average costing is that the recorded amount of inventory on hand represents a value somewhere between the oldest and newest units purchased into stock.Similarly, the cost of goods sold will reflect a cost somewhere between that of the oldest and newest units that were sold during the period. Moreover, the weighted average method is allowed under both generally accepted accounting principles and international financial reporting standards. 2. answer The activity based costing is a managerial accounting system that estimates the cost of goods and services by assigning overhead costs to direct costs, so the company can get many quantifiable figures. And the company make a good plan or estimate next year's cost thought quantifiable figures. Moreover, the company can estimate how much resource is wasted in process through activity based costing. Therefore, the company can save its budget next year. Reference: Accounting tools, What are equivalent units of production, 2015. retrieved from: http://www.accountingtools.com/questions-and-answers/what-are-equivalent-units-of-production.html Eileen Rojasm, Demand Media. The disadvantages & Advantages of activity based costing,2015, retrieved from: http://smallbusiness.chron.com/disadvantages-advantages-activitybased-costing-45096.html

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