B Com Exam > B Com Videos > Cost Accounting > Costing Work in Progress - Method of Costing, Cost Accounting
Costing Work in Progress - Method of Costing, Cost Accounting Video Lecture | Cost Accounting - B Com
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FAQs on Costing Work in Progress - Method of Costing, Cost Accounting Video Lecture - Cost Accounting - B Com
| 1. What is the method of costing work in progress? |  |
Ans. The method of costing work in progress refers to the process of determining the cost of unfinished goods or services that are in the production process. It involves calculating the costs incurred in the production of partially completed products, including direct materials, direct labor, and manufacturing overhead.
| 2. What is cost accounting? | |
Ans. Cost accounting is a branch of accounting that focuses on determining the cost of producing goods or services. It involves analyzing and recording all the costs associated with the production process, including direct materials, direct labor, and manufacturing overhead. Cost accounting helps businesses in decision-making, cost control, and performance evaluation.
| 3. What is the significance of costing work in progress? | |
Ans. Costing work in progress is significant for businesses as it helps in determining the value of partially completed goods or services. It allows businesses to track their production costs accurately, identify any inefficiencies in the production process, and make informed decisions regarding resource allocation and pricing strategies. Costing work in progress also enables businesses to calculate accurate inventory values for financial reporting purposes.
| 4. What are the different methods used for costing work in progress? | |
Ans. There are various methods used for costing work in progress, including the weighted average method and the FIFO (first-in, first-out) method. The weighted average method calculates the average cost per unit by dividing the total cost of production by the total number of units produced. The FIFO method assumes that the units completed first are sold first, and the cost of those units is transferred to the cost of goods sold.
| 5. How does costing work in progress affect a company's financial statements? | |
Ans. Costing work in progress directly affects a company's financial statements, particularly the balance sheet and income statement. The value of work in progress is included in the inventory section of the balance sheet, as it represents the cost of unfinished goods. It also affects the cost of goods sold in the income statement, as the cost of completed units is transferred from work in progress to the cost of goods sold when the products are sold.
Text Transcript from Video
welcome to an introduction to accounting
brought to you by Park Bench tutors you
can find us at Park Bench tutors calm or
you can look us up on Facebook Park
Bench tutors in this podcast we are
going to look at the treatment of
working progress from the point of view
of costing and the work in progress
means material that is not complete at
the end of a period so at the start of a
period there will often be opening
working progress and at the end of the
period that we closing working progress
and of course during the period there
will have been work that has been
completed so how do we define work in
progress well we can look at it in terms
of material we can look at it in terms
of labor in other words how much of the
material is complete or how much is
complete in terms of the labor that
needs doing for the tasks and we may
take one or the other or both so the
simplest way of determining costs is to
work out a basis of equivalent units to
give us completed total units so for
example if we have 400 units that are
complete that's 400 equivalent units or
an equivalent unit is basically a unit
that's complete if you get 400 units at
a 50% complete then if you multiply 400
by 50% you get 200 equivalent units so
we then say that for costing purposes we
add those two together so the total
equivalent units for costing will be 400
plus 200 which is 600
okay let's consider a few examples here
troglodyte clothing at the end of the
first period you get 5,000 completed
units and two and a half thousand units
considered as 50% complete and the cost
for that period are eighteen thousand
seven hundred and fifty okay first of
all we need the number of units we know
we've got five thousand equivalent units
if we've got 2500 units that a fifty
percent complete that's another twelve
hundred and fifty equivalent units I've
multiplied 2500 by fifty percent so my
total of equivalent units is sixty-five
oh and my costs for the period 18,750 so
if I divide the cost by the number of
equivalent units I get three pounds so
that's the cost per equivalent unit is
three pounds so the cost of my finished
production is three times five thousand
because I five thousand finished units
that's 15,000 and the cost of my work in
progress is three times the twelve
hundred and fifty equivalent units which
is three thousand seven hundred and
fifty and of course those will both add
up to the total cost of a period now
let's consider another example a stroke
products producing high insulation
materials at the end of their period
they've got twenty thousand materials
cost 16 thousand labor total costs 36
and completed articles six thousand four
hundred articles whose completion is
estimated as materials 50% complete
labor twenty five good the saint's
complete so we're now dealing with this
in terms of materials and in terms of
labor so first of all we'll determine
the equivalent units for the work in
progress we have six thousand completed
four thousand work in progress so the
four thousand work in progress is fifty
percent complete so the equivalent units
for the work in progress are fifty
percent to four thousand that's two
thousand in the case of the labor the
four thousand which are working progress
only twenty five percent complete so
that's 25 percent to four thousand gives
us a one thousand equivalent for working
progress so my total equivalent units
are eight thousand for materials and
seven thousand for labor I now need to
determine the average cost per
equivalent unit of eight thousand
equivalent units with twenty thousand
costs for material and seven thousand
equivalent units were sixteen thousand
costs for labor which works out at two
pound fifty a unit for materials and two
pounds twenty nine per unit for labor
now I need to apportion the costs for
the finished units and for the work in
progress so we have materials 6000
equivalent units are completed and 2004
the working progress so x 2.5 the two
point five times 6000 is 15000 that's my
costs from off my completed work on
materials and similarly 2.2 nine times
six thousand thirteen thousand seven
hundred I'm doing a bit of rounding here
that gives me a cost for the completed
units in terms of labor total cost for
the completed units twenty eight
thousand seven hundred I now do the same
thing for the work in progress at 2000
of those equivalent units two thousand
times two point five is five thousand I
do the same for labor and I round it
comes about 2300 such seven thousand
three hundred total and if I add those
up my total cost twenty thousand for
material sixteen thousand to labor a
total of thirty six thousand which is
what we had to begin with so what
happens when this opening work in
progress well it depends on how you're
valuing the inventories so it could be
done by FIFO or it could be done by a
weighted average I'm ignoring LIFO here
I know it's still in use in the USA but
this is for a UK program so we'll have
lopsided garments I've bought a number
of those recently lopsided garments have
opening work in progress 12,000 units
considered as being fifty percent
complete our material 75 percent
complete for labor and the closing
working progress 4,000 units forty
percent complete for materials fifty
percent complete for labor and we've got
25 year thousands units that were
completed during the period so I look at
the costs of what I've got we have five
thousand for opening working progress
forty-eight thousand cost during limited
period three thousand for the labor that
I so I've got eight thousand for working
progress and hundred and eight
thousand costs during the period so
where's my starting point well I look at
the flow of the units so the opening
work-in-progress
plus the units that get started must be
equal to the number of units completed
plus the end work-in-progress
so basically 12,000 plus Salamone we've
started gives 25,000 plus four thousand
so in other words I have started
seventeen thousand units I have
therefore got if I look for that bounce
started and finished in the period will
be five thousand so let's look at the
equivalent units to work in progress on
the FIFO method we have 12,000 units
fifty percent complete and that gives an
equivalent of six thousand units this is
for opening working progress for
materials similar thing for labor 12,000
units twenty-five percent complete gives
three thousand equivalent units add the
work started and completed and had the
equivalent units so started and
completed was five thousand for
materials five thousand for labor and so
at the closing I've got four thousand
units which are 40 percent I'm
definitely materials it at the moment
four thousand years at forty percent
complete which is a sixteen thousand so
sixteen hundred which will give me a
total of equivalent units of twelve
thousand six hundred and total
equivalent units for labor will then
also be let me find work I've got this
three thousand it will be ten thousand
so the costs in the period for materials
3.81
per unit and for labor six pounds per
units so all completed units must be the
started and completed in that period
plus the opening work-in-progress
so the completed units for the materials
will be eleven thousand the completed
units for labour will be eight thousand
so now let's take the cost of the
completed units and the closing
work-in-progress we've got the cost of
the completed units forty one thousand
nine hundred and five for materials six
thousand and ninety five for the closing
work-in-progress and similarly for labor
forty eight thousand the cost of the
completed ones twelve thousand for the
cost of the work-in-progress giving us a
total of eighty nine thousand nine
hundred and five for the completed units
eighteen thousand and ninety five for
the closing units so we add the cost of
the opening work-in-progress that's now
being completed which was the eight
thousand and that gives us that for a
cost of the completed units ninety seven
thousand nine hundred and five if you
use the weighted average cost period
then what we do is take the cost of the
opening working progress and the costs
during the period we add those together
and then we distribute them over all the
work completed plus the closing work in
progress
in other words completed units enclosing
working progressive added at the same
cost per unit
so costs are distributed at the average
costs so all costs forty eight thousand
plus five thousand for materials 60,000
plus three thousand the labor gives one
hundred and sixteen thousand so all the
units completed are for costing period
under the widowed eleven thousand say
one hundred and sixteen thousand for the
cost in the period four
or materials 63,000 for labor right the
unit's process 25,000 for materials
25,000 for labor the equivalent units
now for the closing working progress we
need to work out so we've got four
thousand which a forty percent gives
sixteen hundred four thousand that a 50
percents is for the labor mm I've now
got my total units which will be twenty
six thousand six hundred equivalent
units for materials
that's the twenty five thousand cluster
sixteen hundred and twenty seven
thousand total units for the labor which
will be the from the twenty five
thousand plus the two thousand
equivalent so the costs per units are
twenty six thousand six hundred Gibbs
divide it by the costs in the period by
costing period fifty three thousand by
twenty six six hundred is roughly 1
pound ninety nine per unit and for labor
divided 63,000 by twenty seven thousand
is 2 pounds 33 per unit so the cost of
my completed units for materials 49 812
and the cost of my labor
58 333 I've got that obviously bike
multiplying the unit's process
25,000 by $1.99 for materials and 25,000
by two 33 to give the 5833 three for
labor in the same way I have an
equivalent 1600 for materials multiplied
by 1 point nine nine gives me a closing
work-in-progress cost of three one eight
eight I do the same thing for labor I
multiply my equivalent units by two
point three three and so two thousand
times two point three three is four
thousand six hundred and sixty-seven
I'll check my calculations I had costs
in period which totaled 116,000 so at
the end my completed units and my cost
for the closing work-in-progress one oh
a one four five plus seven eight five
five is going to give me one hundred and
sixteen thousand that ends our podcast
relating to work in progress narrated by
David Hopcroft and brought to you by
Park Bench tutors if you want access to
all our podcasts in the form of a
playlist then we have a Moodle setup
which will give you access to free
courses if you want to sign up and you
sign up at Cochran's cheaters.com thank
you for watching and for listening we
wish you success in your studies
brought to you by Park Bench tutors you
can find us at Park Bench tutors calm or
you can look us up on Facebook Park
Bench tutors in this podcast we are
going to look at the treatment of
working progress from the point of view
of costing and the work in progress
means material that is not complete at
the end of a period so at the start of a
period there will often be opening
working progress and at the end of the
period that we closing working progress
and of course during the period there
will have been work that has been
completed so how do we define work in
progress well we can look at it in terms
of material we can look at it in terms
of labor in other words how much of the
material is complete or how much is
complete in terms of the labor that
needs doing for the tasks and we may
take one or the other or both so the
simplest way of determining costs is to
work out a basis of equivalent units to
give us completed total units so for
example if we have 400 units that are
complete that's 400 equivalent units or
an equivalent unit is basically a unit
that's complete if you get 400 units at
a 50% complete then if you multiply 400
by 50% you get 200 equivalent units so
we then say that for costing purposes we
add those two together so the total
equivalent units for costing will be 400
plus 200 which is 600
okay let's consider a few examples here
troglodyte clothing at the end of the
first period you get 5,000 completed
units and two and a half thousand units
considered as 50% complete and the cost
for that period are eighteen thousand
seven hundred and fifty okay first of
all we need the number of units we know
we've got five thousand equivalent units
if we've got 2500 units that a fifty
percent complete that's another twelve
hundred and fifty equivalent units I've
multiplied 2500 by fifty percent so my
total of equivalent units is sixty-five
oh and my costs for the period 18,750 so
if I divide the cost by the number of
equivalent units I get three pounds so
that's the cost per equivalent unit is
three pounds so the cost of my finished
production is three times five thousand
because I five thousand finished units
that's 15,000 and the cost of my work in
progress is three times the twelve
hundred and fifty equivalent units which
is three thousand seven hundred and
fifty and of course those will both add
up to the total cost of a period now
let's consider another example a stroke
products producing high insulation
materials at the end of their period
they've got twenty thousand materials
cost 16 thousand labor total costs 36
and completed articles six thousand four
hundred articles whose completion is
estimated as materials 50% complete
labor twenty five good the saint's
complete so we're now dealing with this
in terms of materials and in terms of
labor so first of all we'll determine
the equivalent units for the work in
progress we have six thousand completed
four thousand work in progress so the
four thousand work in progress is fifty
percent complete so the equivalent units
for the work in progress are fifty
percent to four thousand that's two
thousand in the case of the labor the
four thousand which are working progress
only twenty five percent complete so
that's 25 percent to four thousand gives
us a one thousand equivalent for working
progress so my total equivalent units
are eight thousand for materials and
seven thousand for labor I now need to
determine the average cost per
equivalent unit of eight thousand
equivalent units with twenty thousand
costs for material and seven thousand
equivalent units were sixteen thousand
costs for labor which works out at two
pound fifty a unit for materials and two
pounds twenty nine per unit for labor
now I need to apportion the costs for
the finished units and for the work in
progress so we have materials 6000
equivalent units are completed and 2004
the working progress so x 2.5 the two
point five times 6000 is 15000 that's my
costs from off my completed work on
materials and similarly 2.2 nine times
six thousand thirteen thousand seven
hundred I'm doing a bit of rounding here
that gives me a cost for the completed
units in terms of labor total cost for
the completed units twenty eight
thousand seven hundred I now do the same
thing for the work in progress at 2000
of those equivalent units two thousand
times two point five is five thousand I
do the same for labor and I round it
comes about 2300 such seven thousand
three hundred total and if I add those
up my total cost twenty thousand for
material sixteen thousand to labor a
total of thirty six thousand which is
what we had to begin with so what
happens when this opening work in
progress well it depends on how you're
valuing the inventories so it could be
done by FIFO or it could be done by a
weighted average I'm ignoring LIFO here
I know it's still in use in the USA but
this is for a UK program so we'll have
lopsided garments I've bought a number
of those recently lopsided garments have
opening work in progress 12,000 units
considered as being fifty percent
complete our material 75 percent
complete for labor and the closing
working progress 4,000 units forty
percent complete for materials fifty
percent complete for labor and we've got
25 year thousands units that were
completed during the period so I look at
the costs of what I've got we have five
thousand for opening working progress
forty-eight thousand cost during limited
period three thousand for the labor that
I so I've got eight thousand for working
progress and hundred and eight
thousand costs during the period so
where's my starting point well I look at
the flow of the units so the opening
work-in-progress
plus the units that get started must be
equal to the number of units completed
plus the end work-in-progress
so basically 12,000 plus Salamone we've
started gives 25,000 plus four thousand
so in other words I have started
seventeen thousand units I have
therefore got if I look for that bounce
started and finished in the period will
be five thousand so let's look at the
equivalent units to work in progress on
the FIFO method we have 12,000 units
fifty percent complete and that gives an
equivalent of six thousand units this is
for opening working progress for
materials similar thing for labor 12,000
units twenty-five percent complete gives
three thousand equivalent units add the
work started and completed and had the
equivalent units so started and
completed was five thousand for
materials five thousand for labor and so
at the closing I've got four thousand
units which are 40 percent I'm
definitely materials it at the moment
four thousand years at forty percent
complete which is a sixteen thousand so
sixteen hundred which will give me a
total of equivalent units of twelve
thousand six hundred and total
equivalent units for labor will then
also be let me find work I've got this
three thousand it will be ten thousand
so the costs in the period for materials
3.81
per unit and for labor six pounds per
units so all completed units must be the
started and completed in that period
plus the opening work-in-progress
so the completed units for the materials
will be eleven thousand the completed
units for labour will be eight thousand
so now let's take the cost of the
completed units and the closing
work-in-progress we've got the cost of
the completed units forty one thousand
nine hundred and five for materials six
thousand and ninety five for the closing
work-in-progress and similarly for labor
forty eight thousand the cost of the
completed ones twelve thousand for the
cost of the work-in-progress giving us a
total of eighty nine thousand nine
hundred and five for the completed units
eighteen thousand and ninety five for
the closing units so we add the cost of
the opening work-in-progress that's now
being completed which was the eight
thousand and that gives us that for a
cost of the completed units ninety seven
thousand nine hundred and five if you
use the weighted average cost period
then what we do is take the cost of the
opening working progress and the costs
during the period we add those together
and then we distribute them over all the
work completed plus the closing work in
progress
in other words completed units enclosing
working progressive added at the same
cost per unit
so costs are distributed at the average
costs so all costs forty eight thousand
plus five thousand for materials 60,000
plus three thousand the labor gives one
hundred and sixteen thousand so all the
units completed are for costing period
under the widowed eleven thousand say
one hundred and sixteen thousand for the
cost in the period four
or materials 63,000 for labor right the
unit's process 25,000 for materials
25,000 for labor the equivalent units
now for the closing working progress we
need to work out so we've got four
thousand which a forty percent gives
sixteen hundred four thousand that a 50
percents is for the labor mm I've now
got my total units which will be twenty
six thousand six hundred equivalent
units for materials
that's the twenty five thousand cluster
sixteen hundred and twenty seven
thousand total units for the labor which
will be the from the twenty five
thousand plus the two thousand
equivalent so the costs per units are
twenty six thousand six hundred Gibbs
divide it by the costs in the period by
costing period fifty three thousand by
twenty six six hundred is roughly 1
pound ninety nine per unit and for labor
divided 63,000 by twenty seven thousand
is 2 pounds 33 per unit so the cost of
my completed units for materials 49 812
and the cost of my labor
58 333 I've got that obviously bike
multiplying the unit's process
25,000 by $1.99 for materials and 25,000
by two 33 to give the 5833 three for
labor in the same way I have an
equivalent 1600 for materials multiplied
by 1 point nine nine gives me a closing
work-in-progress cost of three one eight
eight I do the same thing for labor I
multiply my equivalent units by two
point three three and so two thousand
times two point three three is four
thousand six hundred and sixty-seven
I'll check my calculations I had costs
in period which totaled 116,000 so at
the end my completed units and my cost
for the closing work-in-progress one oh
a one four five plus seven eight five
five is going to give me one hundred and
sixteen thousand that ends our podcast
relating to work in progress narrated by
David Hopcroft and brought to you by
Park Bench tutors if you want access to
all our podcasts in the form of a
playlist then we have a Moodle setup
which will give you access to free
courses if you want to sign up and you
sign up at Cochran's cheaters.com thank
you for watching and for listening we
wish you success in your studies
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Nov 15, 2024 Last updated |
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