Question

Question: Explain why equivalent units of production for both direct labor and overhead can be the same as, and why they can be different from, equivalent units for direct materials.

Short answer

Equivalent units of production for direct labor and overheaddepend upon the production stage when the direct material, direct labor, and overheads are added.

Step-by-step solution

Definition of Direct Labor

Direct labor is the amount paid by the business entity to the employees directly engaged in the production process. This cost is included in the cost of goods sold.

Situation when the equivalent units of production for both direct labor and overhead will be the same

Equivalent units of production will be the same for both direct labor and overhead in the situation when at the same stage of the production process, the business entity adds its direct material, direct labor, and overheads.

Situations when the equivalent units for both direct labor and overhead will be different

Suppose the business entity adds the direct material, direct labor, and overheads in the same production process. In that case, the equivalent units of production for direct labor and overhead will be the same.