# PROCESS COSTING – PART 3

## 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

MATERIAL                                                                                                              XXXX                                       XXXX

LABOUR                                                                                                                 XXXX                                       XXXX

ADJUSTED COST PER UNIT TRANSFERRED (W-1)                                             ——-                                       XXXX

TOTAL                                                                                                                    XXXX                                       XXXX

=  – 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%

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.