Dear Ms. Mahr, With all due respect, allow me to take the liberty of explaining why your department had 1,000 equivalent units in ending inventory whereas you believe that you had twice as many on hand.  It has been determined that your department did, indeed, have approximately 2,000 units by the end of the accounting period concerned.  However, all of the units were unfinished, and only half completed in actuality. The use of equivalent units is a method of mathematically converting “partially completed units of product into an equivalent number of fully completed units (“Process Costing,” 2006).”  Your department had 2,000 units of the product that were fifty percent complete by the end of the period.  Therefore, we had to convert them into equivalent units in the following manner: 2000 units X 50% complete = 1000 equivalent units So as to avoid any confusion between our departments on the subject of equivalent units in future, allow me to further explain that the concept of equivalent units concerns “costs incurred, in the form of materials, labor and overhead (“Process Costing”).”  Let us assume that it costs your department $50 to produce 1 unit.  If, at the end of the accounting period, your department has only two half completed products, the costs associated with the units would be $50 in total. This total, as you can see, is the same as a single equivalent unit that accumulates $50 in costs.  Moreover, the ending inventory is a “book value of goods, inputs, or materials available for use or sale at the end of an inventory accounting period (“Ending Inventory,” 2007).  Bearing these definitions in mind, it is impossible for the accountant to place the value of a whole unit on a partially finished product. I hope the issue has been clarified, and we may enjoy many more periods of high productivity in future. Sincerely, Finance Manager                       References   Ending Inventory. (2007). Investopedia. Retrieved 13 August 2007, from http://www.investopedia.com/terms/e/endinginventory.asp.   Process Costing – Chapter 18. (2006). Accounting Tutorial. Retrieved 13 August 2007, from http://www.middlecity.com/ch18.shtml.