(80)---TREATMENTS FOR WORKING PROGRESS IN PROCESS COSTING

Opening and closing working progress

If opening or closing stocks of work in progress exist; the calculations of the cost per unit required some additional computations. It is obvious that partly completed production working progress will have a lower unit cost than fully completed production.
Consequently, when opening and closing stocks of work –in-progress exist unit costs cannot be computed by simply dividing the total cost by the number of units still in the process. For example, if 8,000 units were started a completed during period and another 2,000 units were partly completed, than then these two items cannot be added together to ascertain the unit cost. We must convert the work in progress into finished equivalents also referred to as equivalent production so that the unit cost can be obtained.

Elements of costs with different degrees of completion

A complication which may arise concerning equivalent units is that in any given stock of work in work in process into all of the elements which make up the total cost may have reached the same degree of completion. For example, materials may be added at the start of the process and are thus fully complete, whereas labor and manufacturing overheads may be added throughout the process. Materials may be 100% complete, while labor and overheads may only be partially complete. Where the situation arises separate equivalent production calculation must of each element of cost.

Previous process cost

As production moves through processing, the outputs of one process become the input of the next process. The next process will carry out additional conversion work and may add this achieved by labeling the transferred cost form the previous process ‘previous process cost’ and treating this item as a separate element of cost. Note that this element of cost will always be fully complete as far as closing work in progress in concerned.

Opening Working progress

When opening stocks of working progress exist an assumption must be made regarding the allocation of this opening stock to the current accounting period to determine the unit cost for the period. Two alternative assumptions are possible.

First one may assume the opening work-in progress is inextricably merged with the units introduced in the current period and can no longer be identifies separately the weighted average method.

Second one may assume that the opening work in progress is the first group of units to be processed and completed during the current month the first in first out method.