Article on Importance of Valuation of Work in Progress

Important aspect to be noted:

The cost of work in progress includes raw materials used, direct labour and balance part of the factory overheads. If the work in progress is valued at prime cost, it is essential to have an adjustment for the work in progress. It must be made at the point of computing the prime cost. With the aggregate value of raw materials devoted and direct labour, value of beginning work in progress at prime cost is to be added and value of ending work in progress at prime cost is to be deducted. The ultimate figure will be the value of prime cost.

An illustration can explain the concept of valuation of work in progress better.


A firm produces washing machines and the following details are furnished with respect of its factory operations for the year ended 31.12.2012. (Value of Currency in Dollars ($)). With the provided information, prepare a cost of production statement.

Work in progress on 1.1.2012:
At Prime Cost                    35,000                      Stock of Raw materials on 1.1.12   125,000
Add:                                                                 Purchase of Raw Materials             230,000
Manufacturing Cost        10,000             45,000   Direct Labour                                 150,000
Work in Progress on 31.12.2012:                        Manufacturing Cost                          50,000
At Prime Cost                  25,000                      Stock of Raw Materials                    210,000
Manufacturing Cost         5,000              30,000

                                                                Statement of Cost of Production

Raw materials                                                                                            $145,000*
Direct Labour                                                                                              $150,000
Value of Work in Progress at Prime Cost on 1.1.2012                    $295,000
Prime Cost                                                                                                  $305,000
Value of work in Progress on 1.1.2012                                                    $10,000
Manufacturing Cost                                                                                     $50,000
Less: Value of Work in Progress on 31.12.2012                                   ($5,000)
                Cost of Production                                                                    $360,000

Working Notes:
*Valuation of Raw Materials consumed:
                                Opening Stock                                  $125,000
                                Add: Purchases                                $230,000
                                Less: Closing Stock                       $(210,000)

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