Dear Sir after studying i now understand, using FIFO we use the cost needed to complete op WIP and the units started and completed within the month while with WAV the cost of the month and the cost already occurred. I hope i understand that is. One last question, even though you might have mentioned it, if the method is not specified then FIFO should be used, is there any other indication which method should be used? Thanks in advance
Thanks but I’m a bit confused. When it says normal loss is 10% of units reaching inspection point which is 90% of direct overhead complete. What does that mean?
I do mention this in the lecture. The difference is rounding and is completely irrelevant for the exam (in the exam you will not be asked to prepare t-accounts).
Sir, there is one thing I don’t understand, in calculating the closing WIP for July (5000 units), why did we apportion the overhead cost (50%) whereas, we took the full overhead cost while calculating the Opening WIP. Thanks in advance.
Because we are using the weighted average cost approach. The value of the opening WIP includes part of the cost of producing units that were finished this period and the money spent this period includes the cost of finishing those units.
However, the closing work in progress can only possibly include 50% of the cost if we have only done 50% of the work.
(If we were using FIFO then because we only look at this periods cost, then it does only include the cost of finishing the opening WIP)
For FIFO, you need to know the % complete for each cost in the opening WIP. If you are not given this then you cannot do FIFO and it has to be AVCO.
For AVCO, you do not need the % complete, but you do need to know the value of the opening WIP split between the individual costs (materials, conversion costs etc.). If you are not given the values then it cannot be AVCO and it has to be FIFO.
(If you are given all of the above information, then the question will specify whether it is FIFO or AVCO)
I am trying to complete question 9 in Chapter 12 of the lecture notes. It does not show in the answer how the answer is got. Can you please advise me how this is done?
Because we are using FIFO we need to know how many units were started and finished during the period. It is 12,000 units. (14,000 were finished, but 2000 had already been started in the previous period).
Then we need to know the cost per unit for materials and for conv costs.
For materials, WIP is always 100% finished for materials, and so we spent $51,000 on 15,000 units (opening WIP needed no more materials; 12,000 with full work need full material; 3,000 closing WIP need full materials) So the cost per unit for materials is $51,000 / 15,000 = $3.40.
For conversion cost, we spent $193,170. The effective units were: finishing the WIP – 40% work this period to finish opening WIP of 2000 units is 800 units. Done completely 12,000 units. 30% work this period to start the 3000 closing WIP is 900 units. So total effective units is 800 + 12000 + 900 = 13,700 So the cost per unit for conv costs is 193170 / 13700 = $14.10
Finally, to value the closing WIP:
Materials: 100% finished so 3,000 units x $3.40 = $10,200 Conv costs: 30% finished so 3,000 units x 30% x $14.10 = $12,690
They do not need separate lectures. The thinking needed is covered in the other lectures. Have a read of the chapter in your text book and you will see what I mean.
you are such generous people to do it all free. i wonder if adverts make you enough for living. to support the site i will definatly visit adverts. I am very very thankful to the whole open tuition team. if i pass, the credit is your. Best wishes.
Hye I am in Pakistan so can I do my preparation for ACCA from opentuition lectures and notes.Are the papers and syllabus that are made for acca same all over the world?
Dear sir shouldn’t the opening inventory equivalent units only include 40% of the 15000 units since the 60% was already completed?
never mind i m gonna study this again today and ask again later1
OK 🙂
Dear Sir after studying i now understand, using FIFO we use the cost needed to complete op WIP and the units started and completed within the month while with WAV the cost of the month and the cost already occurred. I hope i understand that is. One last question, even though you might have mentioned it, if the method is not specified then FIFO should be used, is there any other indication which method should be used? Thanks in advance
Questions make it clear which method.
a lot to practice!
True 🙂
why do we take 15000 units for labour..in the the other method we took 9000
thanks!
ok got it
I am pleased you have got it 🙂
Sir, how did you get the value of $10250 for the WIP B/F of 15000 units
But in the question it says its $1250?
SOS
You need to read the question more carefully.
The question says that the materials in the WIP was 9,000 and that the labour and overheads were 1,250. So the total value of the WIP was 10,250.
got it, thank you sir.
You are welcome 🙂
Hi Sir, Just to be clear – if there is no Opening WIP, it doesn’t matter if you use FIFO or WA?
Love your lectures very helpful!
Thank you – Jenny
That is correct 🙂
What does the term inspection point mean?
The stage in the process when the units are inspected.
Thanks but I’m a bit confused. When it says normal loss is 10% of units reaching inspection point which is 90% of direct overhead complete. What does that mean?
It means that we expect to lose 10% of the units when 90% of the work has been done.
Sir.
Does it mean that it’s alright to have $225 less than what it’s supposed to be $55225 for $55000 because of the calculation?
🙂
when using Weighted Average method. It’s not balanced when creating T account (Example3)
I do mention this in the lecture. The difference is rounding and is completely irrelevant for the exam (in the exam you will not be asked to prepare t-accounts).
Yes, thank you sir
Sir, there is one thing I don’t understand, in calculating the closing WIP for July (5000 units), why did we apportion the overhead cost (50%) whereas, we took the full overhead cost while calculating the Opening WIP.
Thanks in advance.
Because we are using the weighted average cost approach. The value of the opening WIP includes part of the cost of producing units that were finished this period and the money spent this period includes the cost of finishing those units.
However, the closing work in progress can only possibly include 50% of the cost if we have only done 50% of the work.
(If we were using FIFO then because we only look at this periods cost, then it does only include the cost of finishing the opening WIP)
if the question(where we hv o.inventory) does not tell you which method to use(either fifo or avco),which one do we use?
It depends what information you are given.
For FIFO, you need to know the % complete for each cost in the opening WIP. If you are not given this then you cannot do FIFO and it has to be AVCO.
For AVCO, you do not need the % complete, but you do need to know the value of the opening WIP split between the individual costs (materials, conversion costs etc.). If you are not given the values then it cannot be AVCO and it has to be FIFO.
(If you are given all of the above information, then the question will specify whether it is FIFO or AVCO)
I am trying to complete question 9 in Chapter 12 of the lecture notes. It does not show in the answer how the answer is got. Can you please advise me how this is done?
Because we are using FIFO we need to know how many units were started and finished during the period.
It is 12,000 units. (14,000 were finished, but 2000 had already been started in the previous period).
Then we need to know the cost per unit for materials and for conv costs.
For materials, WIP is always 100% finished for materials, and so we spent $51,000 on 15,000 units (opening WIP needed no more materials; 12,000 with full work need full material; 3,000 closing WIP need full materials)
So the cost per unit for materials is $51,000 / 15,000 = $3.40.
For conversion cost, we spent $193,170. The effective units were: finishing the WIP – 40% work this period to finish opening WIP of 2000 units is 800 units. Done completely 12,000 units. 30% work this period to start the 3000 closing WIP is 900 units.
So total effective units is 800 + 12000 + 900 = 13,700
So the cost per unit for conv costs is 193170 / 13700 = $14.10
Finally, to value the closing WIP:
Materials: 100% finished so 3,000 units x $3.40 = $10,200
Conv costs: 30% finished so 3,000 units x 30% x $14.10 = $12,690
Total = $22,890
Oh! I cant waiting to destroy this exams on 11th December 2013. My body is aching me for a distinctive pass. thanks to OT team
Hello greetings teacher, there are no lectures of job batch and service costing? There is a chapter in the text book.
They do not need separate lectures. The thinking needed is covered in the other lectures.
Have a read of the chapter in your text book and you will see what I mean.
you are such generous people to do it all free. i wonder if adverts make you enough for living. to support the site i will definatly visit adverts. I am very very thankful to the whole open tuition team. if i pass, the credit is your. Best wishes.
in the exam can we use the method which we feel is easier ? as avco is easier then fifo
does it mention the paper which method to use?
@balaj, its mentioned what method to be used its not like f3
Hye I am in Pakistan so can I do my preparation for ACCA from opentuition lectures and notes.Are the papers and syllabus that are made for acca same all over the world?
@maniali272, acca syllabus and papers are the same worldwide
@NOKINOKI, Thanks