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The following data relate to Mugwump Co, a manufacturing company.
sales $1,500,000
Costs as percentage of sales:
Direct material 30%
Direct labour 25%
Variable overheads 10%
Fixed overheads 15%
Selling and distribution 5%Average statistics relating to working capital are as follows:
receivables take 2½ months to pay
raw materials are in inventory for three months
WIP represents two months’ half-produced goods
finished goods represent one month’s production
credit taken
Raw material—-2 month
dl —- 1 week
v o/h— 1 month
fx o/h — 1 month
selling& Distribution– 1/2 monthwip and finished goods are valued at the cost of material, labour and variable exepenses.
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this is Qs from kaplan study text chapter 7 – Additional qs 2
i have doubt in wip Represent two month’ half- produced goods’
normally it should be done as 2/12 x ( Dl+DM+V o/h)
but in solution it has used 1/12 x ( DL + DM + V o/H)
explanation for this is —– 2 months @ half produced — 1 month equivalent cost
i’m not getting this please help me in this concept.
ThankyouIt states in the information that WIP represents two months half produced goods.
WIP is never fully completed units that is why it is called Work in Progress units.So half produced goods will have half the value of fully produced goods, so two months half produced goods will have the same the value of one month fully produced units effectively.
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