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Hi
I’m really battling with process costing.
There are so many different components to these types of questions. How best to prepare for these for the exam? I’ve gone over the notes and lectures a few times for these sections.
Thanks
If you have watched the lectures, then it is very much a question of keep practising.
You must make sure that you have a Revision/Exam Kit from one of the approved publishers and you must keep practising questions from there and learning from them.
Any problems you have with any of the questions then post on here and I will try and help.
Sir please Explain this question.
Vare produces various inks at its Normanton factory. Production details for Process 1 are as follows:
Opening work-in-progress, 1 April 400 units 60% complete
Closing work-in-progress, 30 April 600 units 20% complete
Units started 1,000
Units finished 800
The degree of completion quoted relates to labour and overhead costs. Three-quarters of the materials are added at the start of the process and the remaining quarter added when the process is 50% complete. The company uses the FIFO method of cost allocation.
The equivalent units of production for materials in the period are:a 680
b 1250
c 850
d 1000
Of the 1000 units that are started, 600 are still in progress at the end of the period and therefore 400 units were complete in full this period (and therefore have the full materials input). (Alternatively you can get the same figure by saying that of the 800 that were finished, 400 were already in progress at the beginning of the period and so only the remaining 400 were completed in full this period).
With regard to the opening work-in-progress, because they were already 60% complete, they will have had all of the materials and so will not need any more this period.
With regard to the closing work-in-progress of 600 units, because they are only 20% complete they will only have had 75% of the materials. 75% materials on 600 units is equivalent to 75% x 600 = 450 full units of materials.
So…..the total equivalent units for materials are 400 (those fully completed this period) plus 450 (equivalent units for the closing WIP) = 850 units.
Hi,
I have a couple of questions on your answer:
1) If Opening WIP was only 60% completed, why do we say that they have had ALL the materials. Should it not be that we still need to complete the other 40% this month and therefore equiv units for mats. should be 160? i.e 40% of 400
2) With regards to closing WIP: why do we say that 75% of materials has been used?
Thanks
1) We have all the materials because the question says that 3/4 are added at the start and the remainder added when it is 50% complete. Because it is 60% complete, it must have all the materials.
2) Again, the question says that at the start 75% of the material has been added. Since it is 20% complete, it has been started (but since it is less that 50% complete, the rest of the materials have not been added).
Hello John, I was trying to crack this. I understand the explanation above. However it says that degree of completion mentioned is for labour and overhead costs. Unless it’s specified we assume that in respect of materials everything is 100% complete right.
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