At the end of an accounting period, production lines typically contain partially completed units (Work-in-Progress). To calculate accurate unit costs, these partially completed units must be converted into a standardized metric known as Equivalent Units of Production (EUP). This metric expresses a collection of partially completed units in terms of a smaller number of fully completed units.

Raw materials and conversion costs (labor and overhead) enter production at different stages. Materials are often introduced entirely at the beginning or end of a process, while conversion costs are typically incurred evenly throughout the production cycle. Therefore, EUP must be calculated separately for materials and conversion costs:

EUP for Materials = Physical Units × % Complete with respect to Materials

EUP for Conversion Costs = Physical Units × % Complete with respect to Conversion

If a mixing vat holds 1,000 units that are 100% complete with respect to raw materials but only 40% complete with respect to labor and overhead, the work done is equivalent to: