Accounting Assignment Help With Process Cost Analysis With Incomplete Units
7.2.2 Process Cost Analysis With Incomplete Units
In a process, incomplete units often remain. For appropriate cost analysis, it is necessary to study the degree of completion of incomplete units. Incomplete process output is termed as work in progress (W.I.P). In case there remain incomplete units, process cost is apportioned between complete units, abnormal loss & W.I.P.
Let us study a problem.
Opening W.I.P. 1,000 units- cost from last period $ 14,000
Degree of complete materials 100%
Labour & OH 40%
Fresh input : 20,000 units at $ 190,000
Wages & OH : $ 95,600
Normal loss : 1000
Actual yield : 18,600
Closing W.I.P. : 1,200 units
Degree of completion : Materials 100%
Labour & Oh 60%
For cost analysis, it is necessary to prepare equivalent production units. Equivalent production units mean one effective unit in the production process. If the opening W.I.P was completed by 100% as regards materials, this means it was completed zero percent in the process. But this was 40% complete as regards labour & overhead. So it was completed to the extent of 60% in the current process, i.e. 1000 x 60%, i.e. 6000 units.
Let us now learn the technique of preparation of equivalent production chart. Let us follow FIFO assumption---that opening W.I.P was completed first.
Equivalent Production Statement
Materials Labour & OH
Units Degree of E.U. Units Degree of E.U.
Completed Completion Completion
W.I.P 1000 0 0 1000 60 600
Fresh units 17600 100 17600 17600 100 17600
Normal loss 1000 - - 1000 - -
Abnormal loss 200* 100 200 200 100 200
W.I.P 1200 100 1200 1200 60 720
Cost($) 190,000 95600
Cost per E.U.(equivalent units) ($) 10.00
Abnormal loss : Units
Opening W.I.P 1000
Fresh units 20000
less Normal loss 1000
less Closing stock 1200
Abnormal loss (A-B) 200
So from the equivalent production statement, it appears that cost of materials per E.U. is $ 10 and cost of labour & OH is $ 5.
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