Communiquez avec les autres et partagez vos connaissances professionnelles

Inscrivez-vous ou connectez-vous pour rejoindre votre communauté professionnelle.

Suivre

How do we account for Work-in-progress (WIP) and what is the concept of equivalent units (EUs) under process costing?

user-image
Question ajoutée par Kamran Anjum , Head of Internal Audit , Rafhan Maize Products Company limited, Faisalabad, Pakistan, Ingredion Incorporated Gmbh
Date de publication: 2014/09/21
Utilisateur supprimé
par Utilisateur supprimé

In process costing which is a system of accumulating costs in order to assign it to a particular cost object . We have two methods to allocate the cost to equivalent units of production ( EUP) first one is first in first out and the second one is weighted average . The only different between them is in the treatment of beginning work-in-process ( BWIP) and the weighted average is easier than FIFO 

so when we talk about FIFO we will first complete the BWIP IF IT IS40% completed we will need to finish60% for the current period . 

Kamran Anjum
par Kamran Anjum , Head of Internal Audit , Rafhan Maize Products Company limited, Faisalabad, Pakistan, Ingredion Incorporated Gmbh

WIP

At the end of an accounting period there may be some units that have entered a production process but the process has not been completed. These units are called closing work in progress (or WIP)units.

  • If we assume that there is no opening WIP, then the output at the end of a period will consist of the following:
    • fully-processed units
    • part-processed units (closing WIP).
  • Closing WIP units become the opening WIP units in the next accounting period.
  • It would not be fair to allocate a full unit cost to part-processed units and so we need to use the concept of equivalent units (EUs) which spreads out the process costs of a period fairly between the fully- processed and part-processed units.

Concept of EUs

Process costs are allocated to units of production on the basis of EUs.

  • The idea behind this concept is that a part-processed unit can be expressed as a proportion of a fully-completed unit.
  • For example, if100 units are exactly half-way through the production process, they are effectively equal to50 fully-completed units. Therefore the100 part-processed units can be regarded as being equivalent to50 fully-completed units or50 EUs.

Different degrees of completion

For most processes the material is input at the start of the process, so it is only the addition of labour and overheads that will be incomplete at the end of the period.

 

  • This means that the material cost should be spread over all units, but conversion costs should be spread over the EUs.
  • This can be achieved using an expanded Statement of EUs which separates out the materials and labour costs.
  • Note that the term conversion costs is often used to describe the addition of labour and overheads together in a process.

georgei assi
par georgei assi , مدير حسابات , المجموعة السورية

I agree with Mr. Kamran answer

 

Utilisateur supprimé
par Utilisateur supprimé

agreed with gentlemen

Utilisateur supprimé
par Utilisateur supprimé

Yes, Above answers are correct.

More Questions Like This