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A firm uses job costing. 3 jobs in a period are worked as follows:
Job BA
OWIP $22760
DM for the period $4620
DL $12,125Job DC
OWIP $3190
DM $11660
DL $10520Job FE
OWIP $0
DM $14335
DL $7695OH are absorbed at 40% of Prime cost in each period.
Job DC & FE remained incomplete at the end of each periodWhat is CWIP value ?
Job BA- already completed
Total Prime Cost for Job DC+FE = $44210
DC=$11660+$10520 =$22180
FE= $14335 + $7695 = $22030$44210*0.4= $17684
I went wrong here.
The answer says:
($11660+$10520+$14335 + $7695) * 1.4Why have they multiplied by 1.4 and not 0.4 please ?
Thanks
Its same as you’ve calculated. Just a bit mathematics.
$44210(100%) + $44210*40% = $44210*140% or $44210*1.4
The $44210 amount is 100% with which a further 40% of the same amount is added. Meaning that the total resulting sum is 140% of $44210.
You were 100% right in your approach. All you had to do was to simply match your answer with that of the book.
Hope it helped you.
Hello,
I need your help please. I’m going over this question again. Thanks.
$44210 (100%) What does this represent please ?
Does it represent the 100% completed job BA ?As i’ve said earlier, there’s some maths in these type of questions. All you need to do is understand the principle and practice more questions to get a good grip.
Whenever we are calculating a % of any amount, the base (amount on which on which a certain % is to be calculated) is always 100%. For e.g. Prime Cost in this question.
I’m calling it ‘base’, otherwise its officially called ‘Net Amount’.Prime Cost = Base amount = $44,210 (100%)
Because the OH is to be calculated on this amount.
So,
Overheads = $44,210*40% = $17,684The resulting amount, which is the sum of both amounts is Gross amount. For e.g. the CWIP in this question.
CWIP = Gross amount = $44,210+$17,684 = $61,894
Now, i’m gonna explain the mathematics a bit more.
CWIP = 44,210 + 44,210*40%
Since, 44,210 is 100%, so
CWIP = 44,210*100% + 44,210*40%Now, you can see that the same amount is multiplied with 2 different percentages. We can simply use the sum of both % amount i.e 140%
CWIP = 44,210*140%
As, 140% = 1.4, so
CWIP = 44,210*1.4 = 61,894
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