MA - More cost accounting techniques

Process Costing: Closing Work-in-Progress

Closing work-in-process (WIP) refers to partially-completed units existing at the end of an accounting period. It
is necessary to value those units so that they can be included in an organisation’s statement of financial position.

Opening work-in-process is the closing work-in-process transferred to the beginning of the next accounting
period.

It is a common practice to calculate a cost per equivalent unit (EU) for closing work-in-process, rather than a
cost per unit as we do for fully-completed units. Concept of equivalent units refers to the process of sharing
out process costs between fully-completed units and partially-completed closing work-in-process units in order to
calculate a cost per equivalent unit. The number of equivalent units can be calculated as follows:

EUs Example
Fully-completed units X 800
Work-in-process (WIP) Y 200
% of completion % 75%
Equivalent units at end of process X + Y*% 800+200*75% = 950

Total process costs

Equivalent cost per unit =
Total number of equivalent units

Value of fully completed units = Number of fully completed units x Cost per EU

Value of closing WIP = Number of EU x Cost per EU

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