Marv and Vicki own and operate a vegetable canning plant. In recent years, their business has grown tremendously and, at any point in time, they may have 30 to 35 different vegetables being processed

Also, during the peak summer months there are several thousand bushels of vegetables in some stage of processing at any one time. With the company's growth during the past few years, the owners decided to employ an accountant to provide cost estimations on each vegetable category and prepare monthly financial statements. Although the accountant is doing exactly as instructed, Marv and Vicki are confused about the monthly operating costs. Although they process an average of 50,000 canned units a month, the monthly production report fluctuates wildly.
What will be an ideal response?

Required:
Explain how the production report can fluctuate wildly if they process a constant amount of vegetables each month.

Answer: It appears that the accountant may not be using equivalent units of production but he or she is only including completed units when preparing the monthly reports. Particularly with large summer inventories, the number and value associated costs with ending work in process could cause wide fluctuations between months if the equivalent unit concept is ignored. The accountant should start using equivalent units to determine the costs to assign to finished goods and ending work in process each month.