Question

I have to do a cost production report in process costing. WIP on 1st is 250000 units. During month 580000 units were added from another dept. Assembling finished 480000 and transferred them out. On the 31st 225000 units were still in wip inventory. The degree of completion of wip inventory at the 30 was DM 80%, DL 65%, and MOH 30%. I know all units have to be accounted for but there are not 830000 units between transferred out and ending wip. What am I missing?

I've tried to upload the project but it will not let me.

Answer 1

You are missing Normal Loss / Abnormal Loss,

If there is normal Loss during the production then the missing units will be Normal Loss and if any excess then the excess Units is Abnormal Loss.

And if the question doesn’t have normal loss then whole units are Abnormal Loss

Normal loss is the loss/wastage happens during production of Goods.

Abnormal loss is the loss which is not normal like excess wastage of goods…etc

Opening WIP is 250,000 Units and 580,000 Units were added from another department then the output must be 830,000 Units (250,000 + 580,000) but the completed Units are 480,000 Units and Closing WIP is 225,000 Units.

So the difference must be Normal Loss,

Normal Loss = 830,000 – 480,000 (Completed Units) - 225,000(Closing WIP)

Abnormal / Normal Loss = 125,000 Units\

Example

Assume that there is a normal loss of 5% and we started production with 1,000 Units

So normal loss = 50 Units (1,000 * 5%)

If the Loss is 70 Units, then Normal Loss is 50 Units and Abnormal Loss is 20 Units (70 - 50 units)

IF there is no 5% normal loss then the whole 70 Units will be considered Abnormal Loss

If you have any doubt please feel free to reach me.