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month end work order cost variance and cogs

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edited Apr 1, 2021 3:55PM in Costing 1 comment

Summary

can cost variance captured at work order during month end adjust cogs amount?

Content

assuming following scenario:

1. average costing method

2. work order is completed with qty 10 and costed at $100 per each

3. qty 9 were shipped to customer during same month

4. during month close process additional cost was brought into work order, for example bulk material consumption at shop floor was valued for additional $50

 

will this additional cost be prorated to cogs for shipped qty of 9?

 

i can see few possibilities: 

a) additional cost of $50 is landed on remaining qty onhand effectively increasing average cost of 1 unit left to $150 (unfavorable)

b) additional cost of $50 is prorated to cogs and onhand qty, effectively increasing cogs by $45 for shipped qty 9 and increasing cost for remaning onhand qty of 1 to $105 (favorable)

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