Valuation of WIP

By %s completion method, you can calculate WIP in Garment Manufacturing Industry.

Pls tell me how much quantity to show as WIP. Like during a month 1 lac pieces are Cut, 75,000 pieces are stitched, 60,000 pieces are finished and 50,000 pieces are packed. Now we take cutting, stitching and finishing processes as WIP while packed piece is taken to be final product.

How can you calculate the cost of your product. I think you have to add cost for each step and calculate the cost up to last step.

The problem is of quantification of WIP goods. How much quantity to show as Cutting, Stiitching and Finishing WIP.  Then we can easily value them. Actually we have to give monthly data to bank.

Dear SSG,

As per data provided by you, cost of each item with respective percentage of completion should be ascertained, lets suppose, cost of cutting is Rs. 10 per piece, then Rs. 1,000,000 would be cutting cost of 100,000 pieces,
Lets further assume that stitching cost per piece is Rs. 25, total stitching cost would be 75000 *25 = 1,875,000. likewise, finishing cost would be Rs. 1,000,000 ( by assuming finishing cost per piece is Rs. 20 each).

Total WIP cost would be Rs. 3,875,000 ( 1,000,000 + 1,875,000 + 1,000,000)
The answer may also be arrived at using alternative methods of calculation provided that sufficent relevant data is given.

While solving, it has been assumed that out of the same 1 lac pieces, 75,000 are stitched and 50,000 are finished.

Best Regards,

Desperado

Yes, i also think you should use process costing so that all normal losses, abnormal losses, wastages & gains are properly accounted. Equivalent statement should be used for cost apportionment and absorption.

Process costing is very much essential for valuing the WIP as per AS 2.

This will also help to find the inventory at each stage of production both in physical qty and valuation.

Thanks Desperado

But what you have calculated is the cost of cutting, stitching and finishing, during the month. The question still remains, how to quantify the WIP at the end of the month.

Just follow your Inventory data or by physical counting you can find the actual quantity. As you mentioned that you have to submit monthly stock report  to your bank then you have the data of all type of inventory.

Now you get the quantity of stock of each stage. Now start step wise costing for them and calculate the value of Stock.

Dear SSG,
Bank will be more concerned with the worth of WIP rather than Quantity, furthermore if percentage completion is required to be ascertained, then you should use the following formula i.e. Total cost of completion to Date / Total anticipated cost at completion * 100.

Lets assume total anticipated cost is Rs. 5,000,000 then 3,875,000( as used in previous illustration) / 5,000,000 *100 = 77.5% should be considered as a quantity of WIP at end.

Let me know if confusion still exists.

Regards,
Desperado

as per AS -2 we should calculate the WIP at cost or NRV whichever is lower .......but if nrv is lower than the cost then we can value the closing stock of wip at nrv if the certainty prevails that the finished goods will be sold in the market at below than than the cost..........