Scenario: Davis Skaros has recently been promoted to production manager. The company uses process costing. He has just started to receive various managerial reports, including the production cost report you prepared. It showed his department had 2,000 equivalent units in ending inventory. His department has had a history of not keeping enough inventory on hand to meet demand. He has come to you, very angry, and wants to know why you credited him with only 2,000 units when he saw on his production line at the end of the month 4,000 units.

Prepare a maximum 300-word response and explain to Mr. Skaros why his production cost report showed only 2,000 equivalent units in ending inventory. In accounting terms, explain to him the concept of equivalent units versus the physical units on the production floor.