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STINX Ltd uses process costing. The closing inventory for period 2 was 500 units which were 100% completed as per material and 50% completed as per conversion cost while the cost for material and conversion was $10000 and $5000 respectively. In period 3 1000 units of material were added as input in which was $10000 and 800 units were completed in period 3. The closing was WIP was 50% completed as per material and 50% completed as per conversion cost. There were no losses in the period. Using the FIFO method. Calculate the value of closing WIP for period 3.
Ans) $9275 but I’m getting $7500.Are you sure that you have typed out the whole question, because you have not written what the cost of conversion was in period 3.
Sorry, I’ve missed out In period3 1000 units of material were added as input with a total cost of $10,000. The conversion cost for the period was $10,000 and 800 units were completed in period 3.
The opening WIP was 500 units, they input another 1,000 units – so a total being worked on of 1,500.
800 units were finished and therefore there were 700 units of closing WIP.Of the 800 units that were finished, 500 had been started last period and so there was no extra work for materials, and 50% extra worked for conversion in this period.
The other 300 finished units had the full materials and full conversion cost in this period.The closing WIP of 700 units had 50% work for both materials and for conversion cost in this period.
Therefore the cost per unit for materials = $10,000 / (300 + (50% x 700)) = $15.3846
The cost per unit for conversion = $10,000 / ((50% x 500) + 300 + (50% x 700)) = $11.1111Therefore the value of the closing WIP = (700 x 50% x $15.3846) + (700 x 50% x $11.1111) = $9,273. (The difference from the answer in your book is simply due to rounding which is irrelevant in the exam.)
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