Question

Question 17:- The average daily cost of production is Rs 35 lakh and average conversion periodis 3 days.
The closing stock work in progress is 10% higher than the opening stock of work in process. The value of
closing stock of work in progress is:
​

Answer 1

The closing stock of work in progress is 110 lakh.

Step-by-Step explanation:

We are given that the average daily cost of production is Rs 35 lakh and the average conversion period 3 days.  

The closing stock work in progress is 10% higher than the opening stock of work in process.  

Let the opening stock of work in progress be 'x', so the closing stock of work in progress is '1.10x'.

Now, the average conversion period is given by;

Average conversion period =   $\frac{\text{Avearge stock of work in progress}}{\text{Average daily cost of production}}$

 

Also, the average stock of work in progress =  (Opening stock + Closing stock) ÷ 2

So, the average stock of work in progress =  $\frac{x+1.10x}{2}$

                                                                       =  $1.05 x$

The average daily cost of production =  Rs 35,00,000

Now, substituting these values in equation 1;

            $3 = \frac{1.05x}{35}$

            $x = \frac{3 \times 35}{1.05}$ = 100 lakh

So, the closing stock of work in progress =  $1.10 \times 100 \text{ lakh}$

                                                                       =  110 lakh