 I'd like job costing, where we know the total cost of partially completed jobs at the end of the period. Process costing isn't as easy to figure out. This is because our partially completed products aren't at the same percentage of completion at the end of the period, like they are in job costing. Some products may be in the sorting or breaking process, while others are in refining or conching. Finally, some may be in wrapping and packaging. Trying to determine the value of ending whip inventory can be rather challenging since the products are at different stages in the production process. The fact is, we know the cost of a fully completed product, but we don't easily know the cost for a 42% completed product. And let's add a layer of difficulty to that. We don't easily know the cost of a product that is 81% complete for direct materials, but only 58% complete for conversion costs. So in order to deal with this complexity, I want to introduce the concept of equivalent units. Equivalent units represent the amount of work done during a period in terms of fully completed units. A very simple example would be, if I had 100 units that are 50% complete, that's the equivalent to 50 units that are 100% complete. And remember, I know the cost of fully completed units. So I could apply the product cost times the 50 equivalent units to determine the cost of the 100 partially completed units. Calculating equivalent units is an important part of process costing. So let's do one more example. Suppose you have a work-study job at the college, and the college president asks you to compute the cost of instruction per full-time equivalent student. The college vice president for finance provides you with the following information. The total cost of instruction is $8 million. The college has 1,000 full-time students and 5,000 part-time students. So what is the average cost of instruction per full-time equivalent student? To determine this, there's one more piece of information we need. We need to know, on average, how many classes part-time students take. Let's assume they take three classes. So that would be 60% of the course load of full-time students. Now we can figure out the average cost of instruction per full-time equivalent student. 1,000 full-time students take 100% of a full load. 5,000 part-time students take 60% of a full-time load. So we multiply the 1,000 students times 100%, which equals 1,000 students, right? 1,000 full-time students is the equivalent of 1,000 full-time students. That's pretty obvious. Then we multiply 5,000 students times 60%, which equals 3,000 students. So 5,000 part-time students is the equivalent of 3,000 full-time students. Plus the full-time equivalent students is 4,000. Finally, we divide the $8 million of cost by the 4,000 equivalent students, and you can report to your college president that the average cost of instruction per full-time equivalent student is $2,000. And that concludes this short video on understanding some of the complex issues of process costing and specifically how to calculate equivalent units.