Statement of Equivalent Production, Statement of Cost, Statement of Evaluation
Evaluating Work-in-Progress requires Cost/unit data
We will be able to ascertain the value of work-in-progress if the following data is available.
- cost of each element per unit
- percentage completion of work-in-progress with respect to each element
- number of units of work-in-progress
With this data available there are two ways the value of work in progress can be ascertained
- By evaluating the per unit expenditure on work in progress units with respect to each element
Elements of Cost Total Material Labour/Labor Overhead
Expensesa) Complete Cost (per unit)
b) % Completion
c) Incurred Cost (per unit) (a) × (b)
d) Work-in-Progress (units)
e) Total Cost (c) × (d)70
100%
70
2,100
1,47,00050
60%
30
2,100
63,00020
75%
15
2,100
31,500140
—
115
2,100
2,41,500 - By converting the work-in-progress units into their equivalent complete units
W-I-P Units Percent (%)
CompleteEquivalent
Complete UnitsCost Per
Completed UnitTotal Cost a) Material
b) Labour/Labor
c) Overheads2,100
2,100
2,100100%
60%
75%2,100
1,260
1,57570
50
201,47,000
63,000
31,500d) Total 2,100 2,41,500
In both these we need the cost per unit of each element of cost to arrive at the value of work-in-progress.
Absence of Cost per unit data
The cost incurred per unit with respect to each element of cost is something that is derived through calculations based on the data relating to the cost incurred. It is not a figure that is readily available.Total Cost |
Total Units Processed/Output |
The cost data available regarding a process would be in relation to the total expenditure incurred on both the completed units and the units in work-in-progress together. If the cost data is capable of being segregated into cost incurred on completed units and cost incurred on work in progress units, then the cost incurred on the work in progress units would itself form the value of work in progress units.
Therefore, in process cost accounting, the first task in evaluating the value of closing work-in-progress is to find out an estimate of the cost per unit of completed production based on the cost data available in relation to the process.
Illustration
- 10,000 units of material were introduced into the process at a total cost of 2,63,200.
- Direct Wages incurred for the process - 1,14,800
- Overhead Expenditure - 2,11,200
- Production completed during the month was of 7,000 units.
- 3,000 units were in process (partially completed) as on 31st March.
These units were
- 80% complete with regard to Direct Materials,
- 40% complete with respect to Labour/Labor and
- 60% complete with regard to Overhead Expenses
There were no stocks at the beginning of the month. There were no losses in processing.
Finding the cost per unit
- quantity of completed units
- quantity of work-in-progress units
- percentage completion of the work-in-progress units with respect to each element of cost
- expenditure incurred on each element of cost
Material Cost per unit
The total cost incurred 2,63,200
= | Expenditure incurred on 7,000 units of completed production + Expenditure incurred on 3,000 units of work-in-progress |
= | 7,000 units × Full Cost per unit + 3,000 units × 80% of Full Cost per unit |
= | 7,000 units × Full Cost per unit + 3,000 units × 80% × Full Cost per unit |
= | 7,000 units × Full Cost per unit + 2,400 units × Full Cost per unit 3,000 units × 80% = 2,400 units (Converting Work-in-Progress units to equivalent complete units) |
= | 9,400 units × Full Cost per unit |
= | Expenditure incurred on 9,400 units of completed production |
⇒ Material Cost per unit
= |
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= |
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= |
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= | 28/unit |
Labour/Labor Cost per unit
The total cost incurred 1,14,800
= | Expenditure incurred on 7,000 units of completed production + Expenditure incurred on 3,000 units of work-in-progress |
= | 7,000 units × Full Cost per unit + 3,000 units × 40% of Full Cost per unit |
= | 7,000 units × Full Cost per unit + 3,000 units × 40% × Full Cost per unit |
= | 7,000 units × Full Cost per unit + 1,200 units × Full Cost per unit 3,000 units × 40% = 1,200 units (Converting Work-in-Progress units to equivalent complete units) |
= | 8,200 units × Full Cost per unit |
= | Expenditure incurred on 8,200 units of completed production |
⇒ Labour/Labor Cost per unit
= |
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= |
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= |
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= | 14/unit |
Overhead Cost per unit
The total cost incurred 2,11,200
= | Expenditure incurred on 7,000 units of completed production + Expenditure incurred on 3,000 units of work-in-progress |
= | 7,000 units × Full Cost per unit + 3,000 units × 60% of Full Cost per unit |
= | 7,000 units × Full Cost per unit + 3,000 units × 60% × Full Cost per unit |
= | 7,000 units × Full Cost per unit + 1,800 units × Full Cost per unit 3,000 units × 60% = 1,800 units (Converting the Work-in-Progress units to equivalent complete units) |
= | 8,800 units × Full Cost per unit |
⇒ Overhead Cost per unit
= |
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= | 24/unit |
Cost per unit is an estimate
Since the % completion of work in progress is an estimate, the cost per unit of completed production derived using that data would also be an approximate figure i.e. an estimate.The above calculations presented in the form of a statement would be as below.
Elements of Cost | Total | |||
---|---|---|---|---|
Material | Labour/Labor | Overhead Expenses | ||
a) Total Cost incurred b) Complete Production units c) Work-in-Progress units d) Work-in-Progress % complete e) W-i-P Equivalent Complete units (c) × (d) f) Total Complete units (b) + (e) e) Cost per unit (a) ÷ (f) | 2,63,200 7,000 3,000 80% 2,400 9,400 28 | 1,14,800 7,000 3,000 40% 1,200 8,200 14 | 2,11,200 7,000 3,000 60% 1,800 8,800 24 | 140 7,000 3,000 – – – 66 |
The total process of finding the cost per unit of completed production is segregated into two stages by preparing two separate statements.
Statement of Equivalent Production (Or) Equivalent Production Statement
This statement gives the number of completed units on which the total expenditure might be considered to have been incurred.Statement of Cost
This is a statement that gives the cost per unit of each element based on the total expenditure incurred and the number of completed units on which the expenditure might be considered to be incurred.
Statement of Equivalent Production
In | Out | Equivalent Units | |||||||
---|---|---|---|---|---|---|---|---|---|
Particulars | Units | Particulars | Units | Material | Labour/Labor | Overheads | |||
% Complete | Equivalent Units | % Complete | Equivalent Units | % Complete | Equivalent Units | ||||
Totals |
Accommodating additional Elements of Cost
If there are more elements of cost involved additional columns under the head Equivalent Units should be provided for the same.In | Out | Equivalent Units | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Particulars | Units | Particulars | Units | Primary Material | Secondary Material | Labour/Labor | Overheads | ||||
% Complete | Equivalent Units | % Complete | Equivalent Units | % Complete | Equivalent Units | % Complete | Equivalent Units | ||||
Totals |
Illustration
The Equivalent production statement relating to the data in the above illustration would be:In | Out | Equivalent Units | |||||||
---|---|---|---|---|---|---|---|---|---|
Particulars | Units | Particulars | Units | Material | Labour/Labor | Overheads | |||
% Complete | Equivalent Units | % Complete | Equivalent Units | % Complete | Equivalent Units | ||||
Introduced | 10,000 | Completed Work-in-Progress | 7,000 3,000 | 100% 80% | 7,000 2,400 | 100% 40% | 7,000 1,200 | 100% 60% | 7,000 1,800 |
Totals | 10,000 | 10,000 | 9,400 | 8,200 | 8,800 |
Relevance to Process a/c
The In and Out columns are an equivalent of the process account with only the unit columns shown.Dr Cr | |||||
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Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Primary Material To Direct Wages To Overheads | 10,000 | 2,63,200 1,14,800 2,11,200 | By Process B a/c By Process A W-i-P a/c | 7,000 3,000 | ?? ?? |
10,000 | 5,89,200 | 10,000 | 5,89,200 |
% Completion of various components of output
Output Component | % Complete (with respect to all elements of cost) |
---|---|
Completed Production Closing Work-in-Progress Normal Loss Abnormal Loss Abnormal Gain | 100% As Given 0% As Given (100% otherwise) 100% |
Statement of Cost
Element of Cost | Equivalent Units | Total Cost (current period) | Cost/unit (completed production) |
---|---|---|---|
(a) | (b) | (b) ÷ (a) | |
Totals |
Illustration
The Statement of Cost relating to the data in the above illustration would be:Element of Cost | Equivalent Units | Total Cost (current period) | Cost/unit (completed production) |
---|---|---|---|
(a) | (b) | (b) ÷ (a) | |
Materials Labour/Labor Overhead | 9,400 8,200 8,800 | 2,63,200 1,14,800 2,11,200 | 28 14 24 |
Totals | 5,89,200 | 62 |
The data relating to equivalent units is derived from the statement of equivalent production. The cost data is derived from the information provided.
Normal Cost of Normal Output per unit
The cost per unit arrived at in the Statement of Cost represents the Normal Cost of Normal Output per unit.When there is closing work-in-progress, we have the per unit cost of each element of cost available unlike in other cases where we come across only the per unit total cost.
Adjustment for Normal Loss realisation
When there are no losses,= |
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= |
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= |
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When there is normal loss, the cost that is considered for calculating the cost per unit would be the normal cost which would be the total cost reduced by the normal loss realisation.
Since we calculate the cost per unit for each element of cost, the normal loss realisation has to be deducted from the cost relating to one of the elements of cost. Deducting it from Material cost would be appropriate. We use the reduced cost in finding out the cost per unit.
Statement of Evaluation
This is done based on the data available in the statement of equivalent production and the statement of cost.
Where, there is closing work-in-progress, the evaluation of various output elements like finished product, closing work-in-progress as well as others like normal loss, abnormal loss, abnormal gain evaluated in the statement of evaluation itself.
Component to be Evaluated | Equivalent Units | Cost Per unit | Total Cost | Value |
---|---|---|---|---|
a) Finished Output Material b) Normal Loss Labour/Labor Overheads Material c) Abnormal Loss Labour/Labor Overheads Material d) Closing Work in Progress Labour/Labor Overheads Material e) Closing Finished Goods Labour/Labor Overheads Material Labour/Labor Overheads | – – – – – – | – – – – – – | – – – – – – | — — |
Total Cost | – |
Cross Check for adjusting approximation
The total of the value column of the Statement of evalaution should be the same as the total cost column of the Statement of Cost. This would help to make adjustments to approximations.Illustration
The Statement of Cost relating to the data in the above illustration would be:Component to be Evaluated | Equivalent Units (a) | Cost/Unit (b) | Total Cost (a) × (b) | Value |
---|---|---|---|---|
a) Finished Output Material b) Closing Work in Progress Labour/Labor Overheads Material Labour/Labor Overheads | 7,000 7,000 7,000 2,400 1,200 1,800 | 28 14 24 28 14 24 | 1,96,000 98,000 1,68,000 67,200 16,800 43,200 | 4,62,000 1,27,200 |
Total Cost | 5,89,200 |
ΣValue column (statement of evaluation) = ΣTotalCost column (statement of cost) = 5,89,200
Relevance to Process a/c
The values arrived at in the Statement of Evaluation form the missing values that we derive through calculations.Dr Cr | |||||
---|---|---|---|---|---|
Particulars | Quantity (in Units) | Amount | Particulars | Quantity (in Units) | Amount |
To Primary Material To Direct Wages To Overheads | 10,000 | 2,63,200 1,14,800 2,11,200 | By Process B a/c By Process W-i-P a/c | 7,000 3,000 | 4,62,000 1,27,200 |
10,000 | 5,89,200 | 10,000 | 5,89,200 |
The values recorded on the credit should always be derived through calculations. Where there is closing work-in-progress, these values are fetched from the statement of evaluation. Where there is no closing work-in-progress these are fetched from the Input, Processing and Output working notes.