SPM Limited produces paints. The company process costing system works on a first in first out basis in determining the costs of closing work in progress and finished goods production. At 1 June, there were 500 litres of work in progress with a value of £3,600. This opening work in progress was 75% complete with respect to all costs incurred in the paint production process. By the end of June, the total cost of paint transferred to finished goods was £49,850. The cost per equivalent litre of production for the month was £10 and there was no closing work in progress in the paint production process at 30 June. How many litres of paint were transferred to finished goods in June?

Question

Quizplus · Accepted Answer

The total cost of paint transferred to finished goods is £49,850, and the cost per equivalent litre of production is £10. Therefore, the total litres transferred to finished goods is £49,850 / £10 = 4,985 litres. However, since the opening work in progress was 75% complete, the remaining 25% of the 500 litres (125 litres) must be completed in June before any new production is added. Thus, the total litres transferred to finished goods should include these 125 litres, which were part of the opening work in progress, leading to a calculation error in the explanation. The correct approach is to divide the total cost by the cost per litre without needing to adjust for the opening work in progress completion percentage, as that cost is already included in the total cost. Therefore, the correct calculation is simply £49,850 / £10 = 4,985 litres, indicating a misunderstanding in the explanation process.

SPM Limited Produces Paints