Question

In order to calculate cost per unit when ending work in progress partially complete

A. Include the cost of ending work in progress in the total cost.

B. Exclude the cost of ending work in progress from the total cost.

C. Divide the cost of ending work in progress by the number of units completed.

D. Treat ending work in progress as abnormal loss in cost calculations.

Answer 1

Include the cost of ending work in progress in the total cost to calculate the cost per unit, using either average cost (total cost divided by total output) or marginal cost (cost to produce one additional unit).

Step-by-step explanation:

The question pertains to calculating cost per unit when ending work in progress is partially complete. To calculate the cost per unit accurately, one should include the cost of ending work in progress in the total cost calculation. The common methods to measure per unit costs are average cost and marginal cost. The average cost is calculated by dividing the total cost by the quantity of output produced (AC = TC/Q). If producing two widgets costs a total of $44, then the average cost per widget is $22. In contrast, marginal cost is the cost of producing one additional unit of output and is computed as the change in total cost divided by the change in output (MC = ∆TC/∆Q). For instance, if the cost of producing an additional widget is $11.50, that would be the marginal cost of that widget.