WIP Costing

jow774
jow774 Registered Posts: 465 Dedicated contributor ? ? ?
Hi,

Can anyone explain to me how Work in Progress Costing works, I cannot get my head around it when it states that eg labour is 75% complete and Materials 100%?

Thanks

Comments

  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    As a cool cat, I'm sure you're keen on good cat food.

    The process we are going to look at is cooking, later on it will go to canning.
    In cooking the staff collect the raw materials from the stores, cut it up, put it in to big pans, cook it for a few hours, then pour it out into containers that are then taken to the canning department.
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    In April lots of material went into cooking department. 20,000kgs costing £5,000
    The labour cost for the hours worked was £9,500

    We produced 16,000 kgs that were transferred to canning
    on 30 April we has 4,000kgs still cooking

    So 16,000 completed, 4,000 closing work in progress
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    Labour time is 75% cutting/preparing the raw materials
    and 25% pouring out the cooked food into containers for transfer to canning

    So all the materials in the 4,000kgs of WIP have been used (100% materials)
    but only 75% of the labour needed to complete the job (the next 25% will be needed before the 4,000 kgs can be transferred)
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    Calculating the cost per equivalent unit

    Do this on an input by input basis, then add the values together.
    1. Materials cost per unit
      Total cost of materials £5,000
      Finished goods produced 16,000 + Closing WIP 4,000 (100%) = 20,000
      ....................................................£5,000 ..... = £0.25 per unit
      ................................................20,000units
    2. Labour cost per unit
      Total cost of labour £9,500
      Finished goods produced 16,000 + Closing WIP 4,000 (75%) = 19,000
      ....................................................£9,500 ..... = £0.50 per unit
      ................................................19,000units
    3. Total cost per equivalent unit produced
      Materials £0.25
      Labour...£0.50
      ............£0.75
    Sandy
    [email protected]
    www.sandyhood.com
  • SandyHood
    SandyHood Registered, Moderator Posts: 2,034
    The entries in the account

    Debit entries

    Materials.................................................. £5,000
    Labour ....................................................£9,500

    Total ......................................................£14,500



    Credit entries
    Tr to Canning Process (16,000 x £0.75)..........£12,000
    Cl WIP (4,000 x £0.25) + (3000 x £0.50).......... £2,500

    Total .....................................................£14,500
    Sandy
    [email protected]
    www.sandyhood.com
  • jow774
    jow774 Registered Posts: 465 Dedicated contributor ? ? ?
    Thanks Sandy, yet again well explained and easily understood. I appreciate your help.

    :thumbup1:
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