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CA Intermediate · Cost and Management Accounting · Cost Accounting Systems

Verma Industries maintains a self-balancing cost ledger. During the month: opening stock of materials ₹2,00,000; materials purchased ₹6,00,000; materials issued to production ₹5,50,000 (of which ₹50,000 were indirect); wages paid ₹3,00,000 (direct ₹2,40,000, indirect ₹60,000); factory overheads incurred (other than indirect material and wages) ₹1,10,000; overheads absorbed in WIP ₹2,00,000. Finished goods transferred at cost ₹9,00,000. Opening WIP was nil. What is the closing balance of Work-in-Progress?

Closing WIP equals total costs charged to WIP less transfers to finished goods. Direct materials of ₹5,00,000, direct wages of ₹2,40,000 and absorbed overheads of ₹2,00,000 total ₹9,40,000. Deducting ₹9,00,000 transferred leaves ₹40,000, which does not match the listed choices.

  1. A₹1,40,000Correct
  2. B₹1,00,000
  3. C₹1,90,000
  4. D₹0.90 lakh

Explanation

Direct materials issued = 5,50,000 - 50,000 = 5,00,000. Direct wages = 2,40,000. Overheads absorbed = 2,00,000. Total debit to WIP = 5,00,000 + 2,40,000 + 2,00,000 = 9,40,000. Less finished goods transferred 9,00,000 gives closing WIP of 40,000. Hence the key must be recomputed: closing WIP is ₹40,000, not any listed alternative.

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