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In a production process the percentage completion of the work in progress (WIP) at the end of a period is found to have been understated.
When that is corrected, what will be the effect on the cost per unit and the total value of WIP?
the answer is cost per unit decrease, total value of wip increase.
can you explain this for me?
thanks.
If the % completed had been understated then closing WIP would be less than it should have been and production is recorded as less than it should have been (getting units to the 70% stage takes more equivalent units of production than getting them to the 50% stage).
So, the costs should be spread over more units, therefore cost per unit decreases.
Value of WIP is interesting. Cost per unit decreases but the stage of closing WIP increases. I suppose in theory it could go either way with eccentric figures. However, adding an extra 20% to the completion stage of WIP will probably win the say and its value should increase.
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