PROCESS COSTING WORK-IN-PROGRESS

1. Introduction
At the end of a process there may be some units that have been started but not
completed. These are known as closing work-in-progress. They are still there at the
start of the next period, waiting to be finished. They are therefore opening work-inprogress of the next period.
2. Equivalent units
In our costing, we still wish to calculate the cost of a finished unit. For costing purposes
we assume the work done on 100 units that are only half finished is equivalent to 50
fully finished units. Therefore, 100 units each 50% finished is regarded as 50 equivalent
complete units.
3. Closing Work-in-Progress (no opening Work-In-Progress)
When we have closing work-in-progress, we calculate a cost per unit for each category of
cost, using equivalent units. The total cost per unit is the sum of these separate costs.
Example 1
During January the following costs were incurred in a process:
Materials (1,000 units) $5,000
Labor $2,760
Overheads $3,440
During the month, 800 units were finished and transferred to the next process. The
remaining 200 units were WIP and were complete as follows:
-

Materials 100%

Labor 60%

Overheads 30%

Required:
(a)

calculate the cost per unit;

(b)

value the finished output and the WIP;

(c)

Prepare Process Account.

4. Opening and Closing W-I-P.

When there is opening W-I-P, there are two alternative approaches to the costing.
(a)

First-in-fist-out (FIFO): Under this approach it is assumed that the opening W-I-P
is the first to be finished. All the costs brought forward for the W-I-P are treated as

costs of these specific units, and the current periods expenditure is allocated over
the work done in the current period.
Weighted Average: Under this approach, all the costs related to current periods

(b)

output (including the value of the W-I-P brought forward) are allocated over all the
units of the current period.
FIRST IN FIRST OUT (FIFO)
Example 2:
During July, the following costs were incurred
-

Materials (30,000 units) $24,900

Labor and overheads $20,075

At the beginning of July, there were 15,000 units of work in progress valued as follows:
-

Materials (100% complete) $9,000

labor and overheads (40% complete) $1,250

At the end of July, there were 5,000 units of work-in-progress. They were 100% complete
for materials and 50% complete for labor and overheads.
Required:
(a)

calculate how many units were completed during July

(b)

calculate the cost per unit

(c)

value the finished items and the closing work-in-progress

(d)

prepare a Process Account.

(Note: use the FIFO approach and assume no losses

WEIGHTED AVERAGE
One problem with the FIFO approach is that completed units are valued at two different
costs depending on whether or not they were opening work-in-progress. The weighted
average approach values all finished units at an average cost.
Example 3
During July, the following costs were incurred
-

Materials (30,000 units) $24,900

Labor and overheads $20,075

At the beginning of July, there were 15,000 units of work in progress valued as follows:
-

Materials (100% complete) $9,000

Labor and overheads (40% complete) $1,250

At the end of July, there were 5,000 units of work-in-progress. They were 100% complete
for materials and 50% complete for labor and overheads.
Required:
(a)

calculate how many units were completed during July

(b)

calculate the cost per unit

(c)

value the finished items and the closing work-in-progress

(d)

Prepare a Process Account.

(Note: use the weighted average approach and assume no losses)