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How Unit Cost increases due to the addition of Materials under Process Cost System

INCREASE IN UNIT COST DUE TO ADDITION OF MATERIALS

The cost of production report of the Finishing Department is used to illustrate the different effects of the addition of materials on total and unit costs of a department.


In the simplest case, added materials, such as parts of an automobile, do not increase the number of units but increase total costs and unit costs.


A materials unit cost must be computed for the department, and a materials cost must be included in the work in process inventory.

Assume that additional materials costing are placed in process and charged to the Finishing Department. Assume further that the materials in work in process are sufficient to complete 2,000 of the 4,000 units; that is, units are 50 percent complete as to materials cost. The effect of the additional materials cost is shown in the cost report. The only differences in the cost report is materials cost charged to the department and the additional materials cost is also reflected in the total cost to be accounted for, in the cost of units transferred to Finished Goods, and in the closing work in process inventory.
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