In a manufacturing account, how do we find or compute the cost of production on completed goods?

Very often in a manufacturing concern, there are goods  which are in partly manufactured state at the end of the accounting period. Such goods  which are known as work-in-progress are usually valued according to the amount of materials, labour and expenses which have so far been incurred.

To find or compute the cost of production on completed goods, we apply the following formula:

Work-in progress at the beginning  PLUS total cost of production MINUS closing work-in-progress

Illustration:

In ABC Ltd, for the twelve months ending 31 st December 20xx, the following details as follows:

(a)    Total cost of production is $30,000,

(b)   Work-in-progress at 1 st January 20xx  is $15,000 and

(c)    Work-in progress at 31 st Dec 20xx is $20,000

Then, Production costs of completed goods computed as follows:-

=$30,000+$15000(Opening WIP) – $20,000 ( Closing WIP)

=$35,000

{ Salient point:

When work-in progress is valued at prime costs then we need to adjust using the total prime cost of production instead of total cost of production figure.

= Total prime cost of production+ opening WIP at prime cost – closing WIP at prime cost }

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.