Example of closing inventory in process costing

Example of closing inventory in process costing

During the process accounting different element of production are added at different level therefore the units are at different level of completion in respect of different element. For example output may be 100% completed in respect of material and only 60% in respect of conversion cost.

In such cases different equivalent units are calculated for different element and different unit price are calculated.

There are two department production and finishing. The production department cost of 100,000 units is during the year is as under

Item	amount
Direct Material	600,000
Direct Labour	400,000
Overheads	200,000
Closing Stock	100,000 units
Fully competed unit	90,000
Closing inventory	10,000
Stage of completion - Material	100%
Stage of completion – Conversion cost	70%

Calculate the process account for production Department

1. Statement of equivalent units

	Material		Conversion	% Completion
Fully competed unit	90,000	100%	90,000	100%
Closing Stock	10,000	100%	7,000	70%
Equivalent units	100,000		97,000

2. Cost per unit

Cost incurred	Cost	No of units	Unit Cost
Material	600,000	100,000	6
Conversion Cost	600,000	97,000	6.185
			12.185

3. Valuation of output and WIP

	units	Rate		Amount
Fully worked unit	90,000	12.185		1,096,600
Closing stock -Material	10,000	6	60,000
Closing Stock-Conversion	7,000	6.185	43,400	103,400
				1,200,000

                                                                   Process Account

item	units	amount	item	Units	Amount
Material	100,000	600,000	Output	90,000	1,096,600
Labour		400,000	Closing stock	10,000	103,400
Overheads		200,000
	100,000	1,200,000		100,000	1,200,000