Valuation of Opening Work-in-Progress

The following points highlight the two methods of valuation of opening work-in-progress. The methods are: 1. FIFO Method of Valuation 2. Average Cost Method of Valuation.

Valuation of Opening Work-in-Progress: Method # 1.

FIFO Method of Valuation:

Under this method of valuation it is assumed that units are dealt with on a first-in-first-out basis which signifies that the first work done in a period is the completion of the opening work-in-process.

Valuation of Opening Work-in-Progress: Method # 2.

Average Cost Method of Valuation:

Under this method of valuation, an average unit cost is calculated using the total of the opening work-in-process plus the current period costs. The effect of this method is that both closing work-in-process and completed units are valued using the same average unit cost.

Problem 1:

Process II receives units from Process I and after carrying out work on the units Process II transfers them to Process III.

For one accounting period the relevant data were as follows:

Opening work-in-progress 200 units (25% completed) valued Rs.2,500. 800 units received from Process I valued at Rs.4,300. 840 units were transferred to Process III. Closing work-in-process 160 units (50% complete). The costs for the period were Rs. 16,580 and no units were scrapped.

You are required to prepare the Process Accounts for Process II using:

(i) The FIFO method of valuation,

(ii) The average cost method of valuation.

Solution

Solution

On Average Cost Method:

The effective units 840 + 80 = 920 units. The total costs involved = Opening W. l. P. + Total Cost of units transferred + Closing W. l. P.

Problem 2:

The following data are available in respect of Process I for February, 1990:

(i) Opening Stock of work-in-process 800 units at a total cost of Rs.4,000.

(ii) Degree of completion of opening work-in-process:

Materials 100%

Labour 60%

Overheads 60%

(iii) Input of materials at a total cost of Rs.36,800 for 9,200 units:

(iv) Direct wages incurred Rs.16,740

(v) Production overhead Rs.8,370

(vi) Units scrapped 1,200 units. The stage of completion of these units was :

Materials 100%

Labour 80%

Overheads 80%

(vii) Closing Work-in-process 900 units.

The stage of completion of these units was:

Materials 100%

Labour 70%

Overheads 70%

(viii) 7,900 units were completed and transferred to the next process.

(ix) Normal loss is 8% of the total input (Opening Stock plus units put in)

(x) Scrap value in Rs.4 per unit.

You are required to:

(a) Compute equivalent production.

(b) Calculate the cost per equivalent unit of each element.

(c) Calculate the cost of abnormal loss (or gain), closing stock in process and the units transferred to the next process using the FIFO method.

(d) Show the Process Account for February, 1990.

SolutionProcess Account

, , , ,

shopify traffic stats