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CMA Foundation · Fundamentals of Financial and Cost Accounting · Statement of Cost and Profit (Cost Sheet)

In preparing a cost sheet for a manufacturing firm, the opening and closing stock of work-in-process are treated in which manner?

Opening work-in-process is added and closing work-in-process is deducted when arriving at factory cost, because opening WIP is cost brought forward into this period's production while closing WIP is cost carried forward to the next period and not yet part of completed goods.

  1. AOpening WIP is added and closing WIP is deducted while arriving at factory costCorrect
  2. BOpening WIP is deducted and closing WIP is added while arriving at factory cost
  3. CBoth opening and closing WIP are added to prime cost
  4. DBoth are ignored until the sale price is fixed

Explanation

Factory cost is total of prime cost and factory overheads adjusted for WIP. Opening WIP represents cost brought forward and is added; closing WIP is carried forward to the next period and is deducted. The reverse treatment in option 2 would understate the cost of goods completed.

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