PROCESS COSTING – PART 1
PROCESS COSTING – PART 2
Cases with Opening work in PROGRESS (WIP)
Till now we assume that there is no opening WIP, but in practical scenarios, situation is not the same. From onward we will discuss cases with opening WIP. Its calculation can be done by:
- FIFO method
- Weighted average method
| FIFO method | Weighted average method |
|
In FIFO method opening WIP units are completed at first priority then it becomes units started and completed in year and then closing units which are uncompleted at year end
Statement of equivalent units + opening WIP x % left to complete + units started and completed in period x 100% + closing WIP x %
Cost per EU Only current period costs are included in calculation of cost per EU
|
Opening WIP values add to current value cost to give average cost per unit as discuss ABOVE in previous topic
Statement of equivalent units Units of output x 100% + incomplete units at year end x % completion = total equivalent units
Cost per EU Total cost = Current period cost + Opening value of WIP Divide it by number of units to get cost per EU
|
Cost of production report
FORMAT
COMPANY NAME
COST OF PRODUCTION REPORT (CPR)
FOR THE MONTH _______ 20__
QUANTITY SCHEDULE: UNITS
UNITS STARTED (IN CASE OF FIRST PROCESS) OR XXXX
OPENING WORK IN PROCESS (IN CASE OF SUSEQUENT PROCESS) XXXX
UNITS TRANSFERRED FROM PREVIOUS DEPARTMENT XXXX
TOTAL XXXX
UNITS TRANSFERRED TO NEXT DEPARTMENT XXXX
CLOSING WORK IN PROCESS XXXX
NORMAL LOSS (IF ANY) XXXX
ABNORMAL LOSS (IF ANY) XXXX
TOTAL XXXX
In quantity schedule the both total should be equal. In case the normal loss is not given and the both total are not equal i-e the first total is greater than the second one the difference will be the normal loss. If in other case the normal loss is given and even than the first total is greater than the second one than the difference will be the abnormal loss.
COST CHARGED TO THE DEPARTMENT: TOTAL PER UNIT COST
OPENING WORK IN PROCESS XXXX XXXX
COST TRANSFERRED FROM PREVIOUS DEPARTMENT XXXX XXXX
COST ADDED BY THE DEPARTMENT
MATERIAL XXXX XXXX
LABOUR XXXX XXXX
FACTORY OVERHEAD XXXX XXXX
ADJUSTED COST PER UNIT TRANSFERRED (W-1) ——- XXXX
TOTAL XXXX XXXX
(W-1)ADJUSTED COST PER UNIT TRANSFERRED:
= – per unit cost of units transferred from previous department
In the total of per unit cost the per unit cost of opening work in process shall not be taken. Per unit cost shall be calculated on the basis of equivalent units. In the case if all material is added at the beginning of process there shall be made an adjustment of per unit cost transferred which is shown as above in cost charged to the department.
COST ACCOUNTANTED FOR AS FALLOWS: (IN CASE OF FIFO METHOD): RS
FINISHED GOODS:
OPENING WORK IN PROCESS (FINISHED UNITS × PER UNIT COST) XXXX
MATERIAL (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX XXXX
NORMAL LOSS COST:
PRIOR DEPARTMENT COST (EQUIVALENT UNITS × PER UNIT COST) XXXX
MATERIAL COST (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR COST (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX XXXX
FINISHED GOODS TOTAL COST XXXX
CLOSING WORK IN PROCESS:
FROM OPENING WORK IN PROCESS
OPENING WORK IN PROCESS (OPENING WIP UNITS × PER UNIT COST) XXXX
MATERIAL (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX
COST FROM OPENING WORK IN PROCESS (A) XXXX
FROM CURRENT PRODUCTION:
UNITS TRANSFERRED FROM PREVIOUS DEPARTMENT (W-2) XXXX
MATERIAL (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX
COST FROM OPENING WORK IN PROCESS (B) XXXX
ABNORMAL LOSS (C)
(UNITS LOSS × PER UNIT TOTAL COST) XXXX XXXX
TOTAL COST XXXX
(W-2) UNITS TRANSFERRED FROM PREVIOUS DEPARTMENT:
Total units of closing work in process – (total opening work in process units – units finished from opening work in process units)
For example
Opening work in process 8,500
Units transferred from previous department 12,000
Finished goods 7,500
Closing work in process 11,540
Under FIFO method, the opening work in process is converted to finished goods first then we move toward to the units transferred from previous department or units started as the case may be. So by keeping this thing in mind
Total finished goods are from opening work in process because finished good units are less than the units of opening work in process.
So,
Closing work in process is combination of both opening work in process and units transferred from previous department
Closing work in process units = opening work in process units (remaining) + units transferred from previous department
11,540 = (8,500 – 7,500) + units transferred from previous department
Units transferred from previous department = 11,540 – 1,000
Unit transferred from previous department = 10,540
Note:
One way to check the accuracy of the question is to check whether the total of cost charged to the department and the cost accounted for as follows should be equal and if not equal then there is a mistake in the solution.
COST ACCOUNTANTED FOR AS FALLOWS: (IN CASE OF WEIGHTED AVERAGE METHOD): RS
FINISHED GOODS:
PRIOR PERIOD COST (FINISHED UNITS × PER UNIT COST) XXXX
MATERIAL (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX XXXX
NORMAL LOSS COST:
PRIOR DEPARTMENT COST (EQUIVALENT UNITS × PER UNIT COST) XXXX
MATERIAL COST (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR COST (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX XXXX
FINISHED GOODS TOTAL COST XXXX
CLOSING WORK IN PROCESS:
PRIOR PERIOD COST (CLOSING WORK IN PROCESS UNITS × PER UNIT COST) XXXX
MATERIAL (EQUIVALENT UNITS × PER UNIT COST) XXXX
LABOUR (EQUIVALENT UNITS × PER UNIT COST) XXXX
FACTORY OVERHEAD (EQUIVALENT UNITS × PER UNIT COST) XXXX XXXX
ABNORMAL LOSS (C)
(UNITS LOSS × PER UNIT TOTAL COST) XXXX XXXX
TOTAL COST XXXX
Under Weighted Average Method, the finished goods and closing work in process both are from the total of opening work in process and unit transferred from previous department.
For example
Opening work in process 8,500
Units transferred from previous department 12,000 20,500
Finished goods 7,500
Closing work in process 11,540
Abnormal loss (Before starting process) 460
Normal loss 450
Abnormal loss 550 20,500
The 7,500 units of finished goods and 11,500 units of closing work in process is from the total of opening work in process and the units transferred from previous departments which is 20,500. The cost is charged by taking average of total cost of both opening work in process and units transferred from previous department divided by the total units of both.
Cases with opening work in PROGRESS (WIP)
Till now we assume that there is no opening WIP, but in practical scenarios, situation is not the same. From onward we will discuss cases with opening WIP. Its calculation can be done by:
- FIFO method
- Weighted average method
| FIFO method | Weighted average method |
|
In FIFO method opening WIP units are completed at first priority then it becomes units started and completed in year and then closing units which are uncompleted at year end
Statement of equivalent units + opening WIP x % left to complete + units started and completed in period x 100% + closing WIP x %
Cost per EU Only current period costs are included in calculation of cost per EU
|
Opening WIP values add to current value cost to give average cost per unit as discuss ABOVE in previous topic
Statement of equivalent units Units of output x 100% + incomplete units at year end x % completion = total equivalent units
Cost per EU Total cost = Current period cost + Opening value of WIP Divide it by number of units to get cost per EU
|
distinguish between fifo and weighted average method
The main difference between FIFO and WEIGHTED AVERAGE METHOD is that under FIFO Method the opening work in process units are segregated in terms of stage of completion w.r.t cost elements.
For example
Opening work in process 2,000 units
Stage of completion
Material 50%
Labour 20%
Factory overhead 20%
Under Weighted Average Method, opening work in process units are segregated in terms of cost w.r.t cost elements.
Opening work in process Rs 50,000
Cost segregation
Material Rs 30,000
Conversion cost Rs 20,000
Total Rs 50,000
Assumption:
In case of FIFO method, the normal and abnormal loss should always from closing Work in Process. ( i-e no loss from opening Work in Process)
equivalent units
Equivalent units are the total units restated in the form of complete units.