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Hello Sir, could you please help out me out with the following question.
A company operates a process costing system using the first-in-first-out (FIFO) method of valuation. No losses occur in the process. All materials are input at the commencement of the process. Conversion costs are incurred evenly through the process.
The following data relate to last period:
Units Degree of completion
Opening work in progress 2,000 60%
Total number of units completed 14,000
Closing work in progress 3,000 30%
$
Costs arising:
Materials 51,000
Conversion 193,170What was the value of the closing work in progress for last period?
A $21,330
B $21,690
C $22,530
D $22,890The correct answer is shown as option D in the notes. I couldn’t quite get it right after multiple tries and working for Qn 9 isn’t shown in the notes.
My working for this Qn is as below:
Total cost arise: Mats. + Conversion=(51,000+193,170)=$244,170
Equivalent units:
W.I.P. b/f: (2000*40%)=800units
Started & Finished: (14000-2000)=12000units
Started WIP c/f: (3000*30%)=900unitsTotal cost p.u.=244,170/(800+12000+900)=$17.82
WIP c/f=17.82*900units=$16040
You need to calculate the cost of materials and conversion costs separately.
The materials will always be 100% complete, it is the conversion costs that will not be completed.
So material cost per unit = 51,000/17,000 = $3 per unit
Conversion cost per unit = 193,170/13,700 = $14.10 per unitSo WIP c/f for materials is 3,000 x $3 = 9,000
For conversion costs is 3,000 x 30% x $14.10 = 12,690
Total = 9,000 + 12,690 = $21,690(Materials are always 100% complete unless specifically told different, which is unlikely. If a unit isn’t finished it is because the labour etc. (the conversion costs) have not been finished.)
Thank you sir for the promptly reply, your explanation has been very helpful! However, I’ve realised that your answer of $21,690 is the option B while the answer given in the notes is actually ($22,890) option D. Could you please take another look? Thank you again for your time sir.
Hello again sir, I tried to work it out again and it seems that if we divide the materials cost ($51,000) by the “total no. of units input” which is (15,000) instead of (17,000), and the rest of the steps remained the same…
Material cost per unit = 51,000/15,000 = $3.4 per unit
Conversion cost per unit = 193,170/13,700 = $14.10 per unitWIP c/f for materials is 3,000 x $3.4 = 10,200
For conversion costs is 3,000 x 30% x $14.10 = 12,690
Total = 10,200 + 12,690 = $22,890So this has matched with the correct answer (D) given in the notes. Sir, could it be this way instead?
Sorry – it was my mistake in my first reply. I was answering too quickly 🙂
Of the 14,000 completed, 2,000 were already in progress and had already had all the material, which leaves 12,000 needing material. In addition there were 3,000 in progress at the end, which had had all the material. So in total 15,000 units (not 17,000).
Sorry 🙁
That’s alright sir. Thank you for explaining the “materials and conversion costs” part and then why should it be 15,000 units. Much appreciated! Have a great day ahead! 🙂
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