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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 IncreaseIf % complete was overestimated, equivalent units would increase
If EUs rise, cost/equivalent unit would fall.
Total cost of completed units must also fall.
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.Correct. 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.
Let’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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