Page 215 - F2 - MA Integrated Workbook STUDENT 2018-19

Process costing

Example 4

At the beginning of September, the opening work-in-process in Process 2 was
15,000 kilos. The degree of completion of the work, and the value of the
opening WIP, were as follows:

Degree of completion Value
$

Direct materials 100% 79,800
Conversion cost 40% 20,500

–––––––
Total value 100,300

During September, 30,000 kilos of materials were input to the process from
Process 1 and 38,000 kilos of completed units were output to Process 3.
Closing work-in-process was 7,000 kilos, which were 100% complete for
materials and 80% complete for conversion costs.

The cost of the materials transferred from Process 1 was $154,200 and
conversion costs in Process 2 in the month were $145,180.

There are no losses or gains in the process.

Using the AVCO method, calculate the cost of output transferred to Process 3
in the period and the value of closing WIP. Prepare the ledger account for
Process 2.

Step 1 – balance the units

OWIP + Input = Output units + CWIP

15,000 + 30,000 = 38,000 + 7,000

Step 2 – calculate the EUs for each element of cost

Equivalent units
Physical units Direct materials Conversion costs

Finished output 38,000 100% 38,000 100% 38,000
Closing WIP 7,000 100% 7,000 80% 5,600

Total EU 45,000 43,600

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