Beginning Work in Process Inventories
Average Costing Method:
When beginning work in process inventory
costs are merged with costs of the new period, the problem is essentially
one of securing representative average costs. Ordinarily, the averaging
process is quite simple.
Example:
The Clonex Corporation
Terminal Department (3rd Dept.)
Cost of Production Report
For the Month of January, 19
|
Quantity Schedule: |
|
|
|
Units in process at beginning
(1/3 labor and factory overhead) |
3,000 |
|
|
Units received from preceding
department |
38,000 |
41,000 |
|
|
------- |
===== |
|
Units transferred to next
department |
36,000 |
|
|
Units still in process
(1/4 labor and FOH) |
4,000 |
|
|
Units lost in process |
1,000 |
41,000 |
|
|
-------- |
===== |
|
Cost Charged To the Department: |
Total
Cost |
unit
Cost |
| |
|
Cost from preceding department: |
|
|
|
Work in process - beginning
inventory (3000 units) |
$5,400 |
$1.80 |
|
Transferred in during this period
(38,000 units) |
65,360 |
1.720 |
|
|
------- |
------ |
|
Total |
$70,760 |
$1.726 |
|
|
------- |
------ |
|
Cost added by the department: |
|
|
|
Work in process - Beginning
inventory: |
|
|
|
Labor |
$910 |
|
|
Factory overhead |
800 |
|
|
Cost added during period: |
|
|
|
Labor |
34,050 |
0.920 |
|
Factory Overhead (FOH) |
30,018
------- |
0.811
----- |
|
Total cost added |
$65,778 |
$1.731 |
|
Adjusted units cost for additional
units |
|
0.043* |
|
------- |
------ |
|
Total cost to be accounted for |
$136,538 |
$3.500 |
|
====== |
====== |
|
Cost Accounted for as Follows: |
|
|
|
Transferred to finished goods
storeroom
(36,000 × $3.50) |
|
$126,000 |
|
Work in process - ending
inventory: |
|
|
|
Adjusted cost from preceding
department(4,000 × $1.726 +
$0.043) |
$7,076 |
|
|
Labor
(4,000 × 1/2 × $0.920) |
1,840 |
|
|
Factory Overhead
(4,000 × 1/2 × $0.811) |
1,622
------ |
10,538
------ |
|
Total cost accounted for |
|
$136,538 |
|
|
====== |
|
|
|
|
Additional Computations:
Unit cost from preceding
department:
$70,760 / 41,000 = $1.726
Equivalent Production:
Labor and factory overhead =
36,000 + 4,000 / 2 = 38,000 units
Unit Costs:
Labor = $910 + $34,050
= $34,960; $34,960 /
38,000 = $0.920 per unit
Factory overhead =
$800 + 30,018 = $30,818; $30,818/38,000 = 0.811 per unit
*Adjustment
for Additional Units
Method No.1
- $70,760/40,000 =$1.769 - $1.726 = $0.043
Method No.2 -
1,000 units ×
$1.726 = $1.728; $1.728/40,000 = $0.043 per unit
|
When additional materials increase the
number of units being processed, it is still possible to have lost units.
However, should increase and lost units occur, no separate calculation
is required for the lost units; only net units added are used. In the
example above, 8,000 additional units resulted from added materials. It
is quite possible, though, that the materials added should have yielded
10,000 units. The difference between the 8,000 units and the anticipated
10,000 units could be due to the loss of 2,000 units. I this is the
case, the effect of the lost units is similar to that of units lost in
the first department; that is, the cost is absorbed within the
department as an increase in unit costs. However, if 10,000 additional
units should have resulted, the effect of losing units can be determined
as follows:
- Compute the unit cost of work done in
preceding departments and the Terminal Department as if no loss had
occurred.
- Compute the loss by multiplying the unit
cost obtained in the preceding computation by the 2,000 lost units.
|
