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Hello everyone,
If you look on the lecture notes offered by O.Tuition, chapter 8 Question 9 page 47.
Question is “find value of the closing WIP”. After having done statement of equivalent units I come up with a total of 13700 units. Total costs (conversions+materials) gives me 244170 with 17.82 as cost per unit. Now it’s all a question of multiplying this cost/unit by the amount stuck in closing WIP…….right?
But the answer is D………how come? the answer I get is 16038
Please help!!!!Hi i’m a bit confused myself because if you work out the equivalent units for materials I get 18000, (2000+13000+3000) as opening , fully worked and closing units are 100% for material. For Conversion I get 14700 units, (800+13000+900)…based on opening being 40% to be completed in new period, plus fully worked units plus 30% of completed closing wip. The problem is when I calculate cost per equivalent units for materials and conversion. I get 2.83 and 13.14 respectively. So then I worked the Value for closing inventory to be 20235 which isn’t in the list. here is my breakdown: (Materials) – (3000 x 2.83) + (Conversion) – (13.14 x 900) … I don’t know where I’m going wrong but maybe we can help each other.
You have answered my question by asking yours. And I thank you.
1st: Look at how you calculate your equivalent units. How many have actually been started and and finished. How many units from the 14’000 units completed are “start-finish” units? 14’000 – 2000 = 12’000 (and not 13’000).
2nd: calculating value is : 51’000 / (2000+12000+3000) = 3
193’170 / (800+12000+900) = 14.1
Value of cl.wip => 3000*3 + 900*14.1 = 21’690
My problem was and actually still is….the wordings. For me the degree of completion applied for both “materials” & “conversion”. But when re-reading “All materials are input at the commencement of the process”, “All materials” = 100% completed for materials. One could say ” of course materials are input at the commencement of the process…….you nincampoop!!”, they do not come in at the end of a process (especially when we’re talking about raw materials, which in most cases we are)lol…. i had a feeling it was to do with the units completed in the period….thanks for highlighting that…at least we both got away understanding it…good luck with your exams
hey i have another question. 😉
regarding joint products. Using “sales value method”
When you want to calculate the profit of a main product A (for example) do you compare sales revenue with the cost of production of the sold units or the cost of production of the total units poduced ( including the ones that’ll end up in inventory). Because lets say we dont sell the remaining units (the tomatoes rott) it is best to measure profit as a comparison between cost of production of the entire MAIN products with sales revenue of units sold…………forget I ever asked the last question……. boy i should really think 5 times before asking a question.
all the best
rouquinblanc. Hi I was trying to answer to ur question few days ago.
I could not work out everything. Anyway the answer that you gave is 21,690 (:) BUT the right one should be 22,890.
The book says “Cost Arising ” so I think they meant the costs for material during the production (NOT THE opening WIP) … Infact if you consider that the Dept input material for 12000 (finished) and 3000 (in the cls WIP) we have 15000.
The cost for material per units becomes 51000/15000 = 3.4Changing this data into ur calculation we have
3000*3.4 + 900*14.1 = 22890 that is the answer DI think that saying “arising cost” they don’t include the opening WIP (it come from previous process/period) and the Tot Cost of matiarial regards only those 15000 units.
Thanks I could not have found the answer without your works
byeyour absolutely right Alfo, only using the “weighted average system” would they need to give us the cost incurred in the previous month/process.
Furthermore the answer is also written as D on the answer sheet.
ThanksI have another question. Mainly problem of understanding or putting a “cost unit” into words:
And so I am currently undergoing immense frustration because I cant seem to understand the logic behind this very simple ratio.
Let us take the example of a company lorry that makes five deliveries in a week.Delivery Tonnes carried Distance Tonne/kilometres (cost unit)
(one way)
Kilometre
1 0.4 180 72 72*0.4
2 0.3 360 108 108*03
3 1.2 100 120
4 0.8 250 200
5 1.0 60 60
total: 560Costs of operating the lorry for this week were 840 dollars. So the cost per tone kilometre would be:
840/560= 1.5 tonne/kilometrethe book defines the “cost per tonne/kilometre as (the cost of carrying 1tonne of goods for one kilometre distance)
Do you have a clue on how to understand this “cost unit”
The way I understand, in order to allocate a cost onto a service u need to know who is using the service and/or what their main activities are.
Ex: Education Full-time student
Canteen number of meals served
passenger transport service Passenger/mile ( for this example I find it easier to understand. If a train travels 200 mile, during its travel it transported 400 passengers who came and left the train; 400/200 gives you 2 passenger/mile) These 2 passengers will cover the cost of operating the the train for a mile. So if the cost of running a train for mile (using elctricity) is 5 it’ll then be transfered on to the 2 passenger who will pay 2,5 + profit margin each. But there i devided not multiplied…. Im confused…helpWell, to me does’nt sound strange this one.
You need to set the right cost base. If your company for esample moves containers (with difference in the weight ) you will have a cost that can be based on miles OR time spent for the trip AND weight
(don’t consider the fixed cost like loading the containar in the lorry)
If you spend (petrol, driver, other cost..) 15000€ to move a container of 10tonn for 100 miles.
In this case you spend 150€ per mile to move 10T container.
That mean that you spend 15€ to move 1T.
If the cost varies according to the volume of the container (cubic metres) your basis will be Cost of moving 1 m3 per mile.
Hope you got my point.
******
I found a problem solving the Esemple 1 from Chapter 13 in Opentuitition guide.
It is about contribution of the limiting factor.
I understand how they define the labour (that is what we need for the ranking)
9/0.75=12 6/0.75 = 8 units etc etc
But there is not written that the material is 0.50 $ …i see from the calculation they did set material cost = 0.5
7$ / 0.5 = 14 units 6/0.5 = 12 units.
Do you think they did not put the material price only because is not important in this esercise where the base is Labour Hrs ??
Bye
Alfthanks. When re-reading the layout of my message, I’m surprised you managed to understand anything. Yes the logic is to find variables which influence the cost of operation in the lorry business: weight & distance & time are infact the variables. Time*distance*weight = cost Any of the three variables will have an impact on the price.
As for the train business distance*empty seats = cost.As for chapter 13 I havet gone through that chapter yet. I’m afraid I won’t be of any help to you. But I’ll definately go back to your question once i’ve read through the relevant chapter. My next chapter is Budgeting on the BPP.
Till next time“all materials are input at the commencement of the process” this sentence is so nasty!!!!!!! i have the same problem with you when sorting out the material cost! i re-read the sentence again and again ! but never figure out the implication should be all material= 100%!!!!!!!! now i get it. why they didn’t explain that clearly? just add material degree of completion 100% lol waste my time,seriously but anyway, thanks a lot
Hi all, I am having the same problem with question 9 how did anyone get the answer D, I am still confused. Thanks!
@rouquinblanc & @alfo thank u guys so much I was so close yet so far cause it Multiple choice i i wouldnt have gotten any marks for the parts i have right…u cleared it up quite nicely and i wanted to take the time to say thanks @maes if u havent gotten it just go through there workings i got a lil help from both 🙂 Thanks
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