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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-progress are dealt with in which manner?

Opening work-in-progress is added and closing work-in-progress is deducted from the total factory cost. Opening WIP represents cost that gets completed in this period, while closing WIP is cost carried to the next period, giving the factory cost of goods completed.

  1. AOpening WIP is deducted and closing WIP is added to the total factory cost
  2. BOpening WIP is added and closing WIP is deducted from the total factory costCorrect
  3. CBoth are added to prime cost
  4. DBoth are ignored as they are only financial accounting items

Explanation

Factory cost incurred in the period is adjusted for WIP to get factory cost of goods completed. Opening WIP is brought in because it was completed this period, so it is added; closing WIP is carried forward, so it is deducted. Reversing the signs would understate or overstate cost of goods completed.

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