MA - More cost accounting techniques

Process Costing - Closing WIP - Different Stages of Completion

When materials, labour and overheads are processed to different degrees of completion, the cost per equivalent
unit calculation includes the following steps:

1) To calculate the number of equivalent units for materials and conversion:

EUs EUs
Materials Conversion

Fully-completed units X X

Materials X <= % of completion * q-ty

Work-in-process (WIP)
Conversion X <= % of completion * q-ty

Equivalent units at end of process Total Total

2) To calculate the equivalent cost per unit:

Materials process costs

Equivalent cost per unit (materials) =
Total number of equivalent units (materials)

Total conversion costs

Equivalent cost per unit (conversion) =
Total number of equivalent units (conversion)

3) To calculate the value of fully completed units:

Number of fully completed units x

Value of fully completed units =
(Cost per EU (materials) + Cost per EU (conversion))

4) To calculate the value of closing WIP:

 Number of EU (materials) x Cost per EU (materials) +
Value of closing WIP =
Number of EU (conversion) x Cost per EU (conversion)

Units $ Units $
Materials X Y Fully completed units X Y
Labour Y Closing WIP c/f X Y
Overheads Y
TOTAL X Y = X Y
Opening WIP b/f X Y

Example 1:

2,000 units of material costing $5,000 are input to Process P. In addition, labour costing $2,000 and overheads
costing $1,000 are incurred during the period. At the end of the period, there are 1,500 fully-completed units
which are transferred to Process Q and there are 500 units of work-in-process. The work-in-process is 100 per
cent complete for materials, and 60% complete for labour and overheads.

Calculate the number of equivalent units at the end of the process and the cost per equivalent unit.

Solution:

EUs: Materials EUs: Conversion

Fully-completed units 1,500 1,500

Work-in-process (WIP): Materials (500 x 100%) 500

Work-in-process (WIP): Conversion (500 xx 60%) 300

Equivalent units at end of process 2,000 1,800

Cost per equivalent unit of materials = $5,000 / 2,000 = $2.5

Cost per equivalent unit of conversion costs = $3,000 / 1,800 = $1.67