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Hi, I have a question about this below exercise:
A company makes a product in two processes. The following data is available for the latest period,
for process 1.
Opening work in progress of 200 units was valued as follows.
Material $2,400
Labour $1,200
Overhead $400
No losses occur in the process.
Units added and costs incurred during the period:
Material $6,000 (500 units)
Labour $3,350
Overhead $1,490
Closing work in progress of 100 units had reached the following degrees of completion:
Material 100%
Labour 50%
Overhead 30%
The company uses the weighted average method of inventory valuation.
8a.9 How many equivalent units are used when calculating the cost per unit in relation to overhead?
A 500
B 600
C 630
D 700
I did watch the lecture; as it uses weighted average method, according to that, the opening inventory is added when we calculate the equivalent units. I calculated and the result was 830, but the answer in the KIT was 630 as it did not include 200 unit of WIP opening. So is the answer in the KIT right or my answer right?
Thank youThe answer is 630, although not for the reason you have written (and I don’t know how you ended up with 830).
There was opening WIP of 200 units.
They added 500 units, but 100 of these remained unfinished as closing WIP. So 400 of them were completed from start to finish.
There were 100 in the closing WIP but they were only 30% finished for overheads, so 30 effective units.
So the total effective units is 200 + 400 + 30 = 630.
I calculated the fully worked unit = Opening unit + Addition – Closing unit = 200 + 500 – 100 = 600. So the total effective units of mine is 200 + 600 + 30 = 830. So we don’t add opening units when we calculate fully worked units?
600 units were finished, but they include the opening WIP that was finished, so you don’t add them on again!
600 + 30 again is equal to 630.
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