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Difficulty: EasyValuation and Adjustment for Work-in-Progress (WIP)

In a manufacturing entity, the prime cost for a financial period is ₦50,000\text{₦}50,000 and factory overheads total ₦20,000\text{₦}20,000. If the opening work-in-progress is valued at ₦5,000\text{₦}5,000 and the closing work-in-progress is ₦3,000\text{₦}3,000, what is the cost of production?

Answer: 72000 ₦

Answer

The cost of production is ₦72,000\text{₦}72,000.
The cost of production is determined by summing prime cost and factory overheads, adding opening work-in-progress, and subtracting closing work-in-progress: ₦50,000+₦20,000+₦5,000−₦3,000=₦72,000\text{₦}50,000 + \text{₦}20,000 + \text{₦}5,000 - \text{₦}3,000 = \text{₦}72,000.

Step-by-Step Solution

1
Calculate the total factory expenditure prior to work-in-progress adjustments by adding factory overheads to prime cost.
₦50,000+₦20,000=₦70,000\text{₦}50,000 + \text{₦}20,000 = \text{₦}70,000
Prime cost and factory overheads together represent the current period manufacturing inputs.
2
Add the valuation of opening work-in-progress.
₦70,000+₦5,000=₦75,000\text{₦}70,000 + \text{₦}5,000 = \text{₦}75,000
Opening work-in-progress consists of partially completed goods carried over from the prior period that were completed in the current period.
3
Deduct the valuation of closing work-in-progress.
₦75,000−₦3,000=₦72,000\text{₦}75,000 - \text{₦}3,000 = \text{₦}72,000
Closing work-in-progress consists of uncompleted goods at the end of the period that must be deferred to the subsequent period.

Key Concept

Valuation and Adjustment for Work-in-Progress (WIP)
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Valuation and Adjustment for Work-in-Progress (WIP)

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