Under this method equivalent units are calculated as follows Equivalent Units

Under this method equivalent units are calculated as

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Under this method, equivalent units are calculated as follows:
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Equivalent Units = Units completed and Transferred + Ending work in progress inventory: (% completion) Cost per Equivalent Unit = Previous Period costs + Current period costs In beginning working process Equivalent units of work done. Under weighted average approach, we do not distinguish the “units started and completed in the current period” from the `units completed and transferred ` and the `Ending working period` a) First In First Out (FIFO) This method considers only those costs incurred during the current period. Equivalent units are calculated as follows: Equivalent Units= Units completed and transferred + (Units in ending W.I.P x % of completion – Units in beginning ) X % of completion Cost/Equivalent Unit = Current Costs Equivalent Units Carefully Note that FIFO distinguishes the “units started and completed in the current period” from the units completed and transferred. This is done by subtracting the “beginning W.I.P.” from the “units completed and transferred” and “the ending work in process”. Illustration The following work in progress account relates to the blending department of ABC Limited, a soft-drinks company for the month of January 1999. Raw materials were introduced at the start of the work while labour and overheads were incurred through-out the blending process. Blending Department: W.I.P A/C Particulars Shs Particulars Sh Bal b/f = 5,000L (4/5) = 65,000 Completed and transferred out: 29,000L - Raw materials added (30,000L) 125,000 Ending W.I.P (2/3) 6,000L - Direct Labour 145,000 Factor Overheads 201,000 Additional Information 1. Beginning W.I.P. consists of the following: - Raw materials shs.15,000 - Direct Labor shs.20,000 - Factory Overheads shs.30,000. Required
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Calculate cost/equivalent units using: a) Weighted average b) FIFO Weighted Average Total Physical Units Materials Conversion Completed Transferred Out: 29,000 29,000 29,999 Ending W.I.P 6,000 6,000 4,000 ______ ______ (2/3 X 6,000) 35,000 35,000 33,000 Process Costs: In beginning Inventory: 15,000 50,000 Current Costs: 125,000 346,000 140,000 396,000 Cost per equivalent Unit: Shs.140,000 Shs.396,000 35,000 33,000 = Shs.4 Shs.12 Total Cost per equivalent Unit: 4 + 12 = Shs.16 FIFO Total Physical Units Materials Conversion Beginning W.I.P 5,000 1,000 = (1/5 X 500) Units started and completed during The current period = (2,900 – 5,000) 24,000 24,000 24,000 Ending W.I.P 6,000 6,000 4,000 = (2/3 x 6,000) 35,000 Equivalent Units 30,000 29,000 Current Costs: 125,000 346,000 Cost/Equivalent Units 125,000 346,000 30,000 29,000 Total Cost Per Equivalent Unit: Shs,16.10 = Shs.4.20 Shs.11.90 * Equivalent Units of 5,000 x (1 – 4/5) = 1,000 units was the work done in the period to complete the beginning W.I.P. Note that the previous period costs in the beginning W.I.P (Materials. shs.15,000 and converting – shs.50,000) have been excluded in *
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6.4.3 PROCESS COST REPORT This is a commonly used statement which traces the flow of units produced and costs incurred in the production process. The report is prepared for each process and it provides a reconciliation of the physical flow of units and the total costs for the period . Assuming no spoilage or losses, the following relationships will always hold: 1. Physical Units: Beginning W.I.P + Units started during – Units to account for the period.
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