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Process costing

Opening work in progress (OWIP)

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

Weighted average (AVCO) FIFO

Used when the units of product are all Used when the units are separable and
mixed together and are inseparable e.g. identifiable e.g. cars on a production line.
liquids such as paint.

When calculating the cost per EU the The completed units need to be split into
OWIP carry forward costs are included ‘completed OWIP’ and those that were
as well as the period costs. worked from ‘start to finish’.

The EU needed to complete the OWIP
need to be included in the EU statement.

OWIP carry forward costs are included at
the valuation of output stage so are not
required when calculating the cost per EU.

 If using AVCO the OWIP units form part of the completed units in the process.
They are indistinguishable from those units fully made in the period so the cost
incurred in the previous period to produce the OWIP is included in this periods
cost when calculating the cost per EU.

 If using FIFO the OWIP units have to be finished before any new units can be
started. This means that the completed units will be made by first completing
any OWIP and then by producing units from start to finish in the period.

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