Equivalent units of production: a new look at an old issue

Purpose - This paper focuses on the determination of the cost completion rate used to calculate the equivalent units of production in a continuous process costing system. The paper aims at two research questions. What procedures do companies utilize in practical terms? How should the completion level percentage be calculated conceptually? Design/methodology/approach - The study is a qualitative exploratory survey. The companies targeted were those noted in "Melhores e Maiores," a ranking of the best and biggest Brazilian companies. A total of 175 questionnaires were sent to pre-selected enterprises, each with revenues of more than US$100 million per year, and 50 usable responses were returned. Findings - A literature review of the theoretical procedures used for continuous process costing revealed no indication of an objective method for determining the completion level. The empirical research in the present study confirmed that, in practice, companies do not adopt the general procedures proposed by the theory. The best practices applied by the companies have been shown to be an adequate alternative, because the results are identical to those obtained with the proposed method. Research limitations/implications - The study bears the usual limitations of a qualitative exploratory survey regarding its generalization to other companies. Originality/value - The originality of the study is based on the assumption that cost accounting theory does not offer an objective solution for the computation of the completion level percentage and, consequently, that companies in continuous process production system do not adopt the theoretical concepts with respect to inventory evaluation of goods-in-process and finished goods.