Process Costing – Work-in-progress (part 2) – ACCA Management Accounting (MA)
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For opening w.i.p we only take 60% because it’s the work we do this period, for labour and overheads. Materials are 100%. Complete. I just don’t understand why it’s different for closing w.i.p, materials are 100 complete but we get equivalent units, 100%×5000, 5000 units and yet we only do work for labour and overheads.
Hi John, I don’t understand the quiz question num 4 related to this topic which asks for the closing WIP using FIFO method. I tried working it out following the way you’ve shown above and I’m getting a different answer. They’ve shown the correct workings but I can’t make sense of them, I don’t know where they’re getting the 12000 figure from for instance. Can you please go through the workings of that question step by step? Thank you.
I’ve found the answer you gave in an earlier post. Thank you.
could you please explain me as well? I don’t understand either.
For closing W.i.p why do we get equivalent units for materials,100% by 5000 and didn’t do the same for opening w.i.p. If they are 100 percent complete, we only do work for labour and overheads. 50%. I just don’t understand.
Sir,
To arrive at cost per unit, why the opening balance cost of $9000 (M) & $1250 (L & O) was not added to the current month’s costs ?
Never mind, I just realized. That we are calculating the cost per unit for july. And the closing balance values/cost of last month are already given. We just calculate the cost of the balance of that closing balance as opening balance for this month.
0% for Material as $9000 is the cost for 100% of it.
60% for Labor and Overhead as $1250 is the cost for 40% of it.
I understood because I first time ever visited the answers at the back of the Notes. They were quite helpful in making me grasp in one glance the scenario, due to the nice formatting. However I do recommend if you consider adding hyperlink to shift between the questions and answers in the future, would be quite a useful things for us students sir 🙂
We are using FIFO, and those amount were not spent this month.
They are, of course, treated as part of the cost of opening WIP when those units leave the process (as I show and explain in the lecture).
In opening WIP of 15000 units
Mat 100% complete
Lab and OH 40%
But when u find equivalent units u didn’t add those 15000 units in material and u add 60% to OH where it is 40%??????
40% of the work had already been done, so it is the remaining 60% that was done in the period, and it is the work done in this period that is relevant for calculating the equivalent units when using the FIFO approach.
Example 1 :
During the month, 800 units were finished and transferred to the next process.
Example 2 :
At the beginning of July, there were 15,000 units of work in progress valued as follows:
Seems similar to me sir. So why is one added and the other one is not?
Thank you 🙂
The two statements are not similar at all.
1 is saying that 800 units were finished during the period and transferred out (the other 200 were only part finished and so were not transferred out).
2 is saying that at the start of the period there were already 15,000 units that were part finished and were then finished this period. They will be finished and transferred out together with other units made during this period.
Thank you so much, sir 🙂
You are welcome 🙂
In the prior video, you listed the finished units (800) but in this video you excluded it. I don’t understand that part.
lol, I realised why those were opening WIP. Those WIP were not started and finished in that period.
That is correct 🙂
Example 1 :
During the month, 800 units were finished and transferred to the next process.
Example 2 :
At the beginning of July, there were 15,000 units of work in progress valued as follows:
Seems similar to me sir. So why is one added and the other one is not?
Thank you 🙂
Cant believe the pass rate for MA is so high!!! Very difficult, endless maths to remember.
There is not so much maths (and remember that you are given the formulae) 🙂
Highly unlikely we would be asked a question which takes so long to work out. This took 15 minutes to answer and in the exam we have on average 2 minutes per question.
I think your first example in this chapter is more likely.
why you take 60% of cost per unit not the total cost?
40% of the work was done last period and so only 60% of the work was done this period. 60% work on 15,000 units will have the same cost as doing full work on 60% x 15,000 = 9,000 units.
Dear Sir,
Good day to you !!
could you please help me to clarify how to calculate equivalent unit if any process introduced further materials in which process. as an example. There are materials which transferred from process 1 to process to 2, 4000 units and cost 6000.00 in process 2 further materials introduced costing 1,080.00 and conversion cost is 1720.00
closing WIP consist
100% complete materials process 01
50% complete Materials process 02
30% complete from Conversion cost
looking forward your solution to calculate eloquent unit
In future, please ask this kind of question in the Ask the Tutor Forum and not as a comment on a lecture 🙂
I cannot show the full calculation because you have not said how many units were transferred out of Process 2, and nor have you said whether the question requires the FIFO or weighted average approach.
However the approach to arriving at the equivalent units is exactly the same as explained in the lectures. You need to do the calculation three times – once for the materials from Process 1 (for which both the opening and closing WIP are 100% complete), once for the materials added in Process 2 (where the closing WIP is 50% complete – if the question has not said anything about the opening WIP then it has to be the weighted average approach), and once for the conversion costs.
Once you have calculated the cost per equivalent unit for each of the three costs, then the total cost per unit is the total of the three.
Dear sir,
Good day to you !!
first if all sorry for the incomplete question asked.
question says FIFO approach and there is no opening WIP. and Closing WIP is 800 Units out put is 3200 units.
anyhow i would like to thank you for the answer given even though question is incomplete.
also i would like to know that how to ask question by “Tutor Forum”
Thanks And regards.
Click on ‘forums’ in the red bar at the top of this page, and then follow the links.