WIP Costing

jow774

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

SandyHood

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.

SandyHood

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

SandyHood

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)

SandyHood

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

SandyHood

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

jow774

Thanks Sandy, yet again well explained and easily understood. I appreciate your help.

:thumbup1: