Page 214 - F2 - MA Integrated Workbook STUDENT 2018-19

Chapter 9

There are 2 different techniques that need to be considered for OWIP

Average cost method (AVCO)/weighted average cost method
(WACO)

 Used when the units of a product are mixed together and are
inseparable (liquids)

 OWIP brought forward costs are included in the cost per EU
calculation

First in First out (FIFO)

 Used when the units are separable and identifiable (cars on a
production line)

 The OWIP is completed first then further units are started

 The OWIP EUs are based on how much effort is needed to
complete the OWIP

 OWIP brought forward costs are included at the output valuation
stage

A step by step approach is:

 Balance the units (there will be no losses or gains in the questions you are
set).

 Calculate the EU for each element of cost – material, labour and overheads.

 Calculate total costs for each element of cost – material, labour and
overheads.

 Calculate cost per EU for each element of cost.

 Calculate the value of the completed units and CWIP

 Complete the ledger accounts

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