At the end of a period the percentage completion of the work-in- progress in a continuous manufacturing process was over estimated.
What effect would correction of the error have on the cost per equivalent unit and the total cost of output completed in the period ?
Unit cost Cost of output
A. Decrease Decrease
B. Decrease Increase
C. Increase Decrease
D. Increase Increase
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Process Costing
11y ago#1If % complete was overestimated, equivalent units would increase
If EUs rise, cost/equivalent unit would fall.
Total cost of completed units must also fall.
But the question ask for the effect of correction of the error.
11y ago#3Well, what do you think?
Percentage completion of WIP overestimated
Total cost / total EU = cost per EU
eg. overestimated- 8000/9600=0.83
correction,total eu fall -8000/9000=0.89, cost per eu increase
total cost of output = completed unit*cost per eu
cost per eu increase, total cost of output also increase.
11y ago#5Correct. The error has caused, as I said, Cost/EU to be understated and cost per completed unit to also be understated.
Therefore, the correction would increase both of these.
Sir please explain the first line i couldn't understand it . How EU will increase.
5y ago#7Let's say no opening stock, 1000 units completed and 100 units closing stock. Total costs in period $10,000.
C stock degree of completion initially estimated at 30%: cost per equivalent unit = 10,000/(1000 + 100 x 0.3).
Then, 30% is found to be an overestimate and true figure is 20%. Then cosy per equivalent unit = 10,000/(1000 + 100 x 0.2)......higher than before.
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