In above illustration no21 ask to prepare statement of equivalent prodution.while preparing this statement it is written that transfer from Opn wip and fresh unit.why under material head it is taken nil and under labour and overhead is taken 40 % besides it is given in question that labour and overhead has been 60% compleate
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Hello.
First of all Equivalent production is calculated because of incomplete units in respect of material ,labour and overheads.
CONCEPT :-Take that % which is processed /manufactured/completed during current year.
Eg: If a unit is complete 40% at the beginnning , it means rest of the 60% is completed during current year
Now, when a factory incurs expenses of material, labour and overheads during a particular year,their burden is put on that % of units, which are completed(i.e manufactured/processed) during the year . Please focus on the previous sentence in bold properly.
In this case the burden of M=88500 L=20500 O/H=41000 is put on that percentage of goods which are manufactured during the year .
Now , tell me- if opening W.I.P. is complete 100% in respect of material at the beginning, then how much material you used during this year in W.I.P.? answer = nil / 0%.
Similary for labour:- 60% complete at the beginning, 40 % burden during this year. Same for overheads.
Now , in case of fresh units, they were incomplete at the beginnning ,so the factory incurred expenses to complete the 100% units during the year.
Now last part of your doubt.:-
60% labour and overheads were completed last year . In this year, rest of the 40% units in respect of labour and overhaeds are completed.
Hope your doubt is eliminated. If not clear, ask again.
CAclubindia
