Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed
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| Assembly Testing DM 60% DM Added Added Closing WIP Use this timeline to explain the logic behind the EU calculations. In assembly, production begins with DMs that are assembled. As soon as the units begin production, they are 100% complete as to materials. The closing WIP is 60% of the way through Assembly at the end of February. It already contains all its DM but has only 60% of the conversion costs. Thus, closing WIP is at different stages of completion with respect to the different inputs. The timeline makes it clear that the closing WIP will be completed during March by adding the remaining 40% of the conversion costs to complete the units. The accuracy of the product costs hinges critically on the accuracy of the percentage of completion estimation, especially when the WIP is large (e.g. wineries. Students are often confused about when a separate EU calculation is necessary. Emphasise that whenever a factor of production is added at a different stage in the production process, a separate EU computation is required. In the Euro-Défense illustration, suppose steel is added at the beginning of the Assembly process and electronics are added two-thirds of the way through Assembly, closing WIP that is 60% complete would have steel but not electronics. We need separate EU calculations for steel and electronics of DM. (Many students erroneously believe that the number of EU should be the same for all DM.) For simplicity, the examples assume that all conversion costs (labour, material handling, utilities, etc) are incurred uniformly throughout the process. That is, a unit that is 70% complete has incurred 70% of the labour, material handling and utility costs. Extension to multiple cost categories (that are incurred indifferent patterns throughout the production process) would simply involve calculating separate EU and costs for each indirect cost category. Case 3 The percentage completion is the percentage complete at that point of time. If opening stock was 40% complete, 40% of the work was completed last period. The remaining 60% will be done in the current period to complete the units. Conversely, if closing stock is 40% complete, the closing stock will be done next period. As the problems become more complex, timelines become more helpful. Consider the following timeline for the Euro-Défense illustration’s March data Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5 th Edition, Instructor’s Manual © Pearson Education Limited 2012 Download 1.72 Mb. Share with your friends:
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