4
Chapter 4 Process Costing
I. Supplement: FIFO method (slide 1: title slide)
A. FIFO vs. weighted-average method
i. The FIFO method (generally considered more accurate
than the weighted-average method) differs from the
B. Equivalent units − FIFO method
Learning Objective 4S-6: Compute the equivalent units of
production using the FIFO method.
i. Let’s revisit the Smith Company example that was used
3
Chapter 4 Process Costing
2. The first step is to determine the equivalent units
needed to complete beginning work in process
inventory (180 units for materials and 240 units
for conversion).
5. A different visual depiction of the calculation of
equivalent units with respect to materials is as
follows.
6. A different visual depiction of the calculation of
equivalent units with respect to conversion is as
follows.
C. Comparing equivalent units of production under the
weighted-average and FIFO methods
i. The FIFO method removes the equivalent units that
were already in beginning inventory from the
1. The equivalent units of material produced per the
weighted-average method (5,940 units) minus the
equivalent units of material in beginning
9
8
5
6
Chapter 4 Process Costing
Helpful Hint: The only difference in the equivalent unit
calculations between the weighted-average and FIFO
methods is that the equivalent units in beginning inventory
D. Cost per equivalent unit − FIFO method
Learning Objective 4S-7: Compute the cost per equivalent
unit using the FIFO method.
i. Recall the following facts with respect to Smith
Company’s Assembly Department.
ii. The formula for computing the cost per equivalent units
11
12
20
Chapter 4 Process Costing
E. Applying Costs—FIFO Method
Learning Objective 4S-8: Assign costs to units using the
FIFO method.
i. Computing the cost of ending work in process
inventory.
1. The first step is to record the equivalent units of
production in ending work in process inventory
ii. Computing the cost of units transferred out
1. The first component of the computation is to
record the cost in beginning work in process
15
17
18
Chapter 4 Process Costing
b. The second step is to record the cost per
equivalent unit ($20.3816 for materials
3. The third component of the computation is to
compute the cost of units started and completed
this period.
a. The first step is to record the units started
and completed this period (5,100 units for
4. The final computation is to compute the total cost
of units transferred out ($194,880).
Learning Objective 4S-9: Prepare a cost reconciliation
report using the FIFO method.
22
23
20
Chapter 4 Process Costing
iii. Reconciling costs
1. Computing the costs to be accounted for:
a. The first step is to record the cost of
beginning work in process as shown earlier
2. Computing the costs accounted for:
a. The first step is to record the cost of ending
3. Notice the two totals agree indicating that all costs
have been accounted for ($1 rounding error).
iv. A comparison of costing methods
1. In most situations, the weighted-average and
FIFO methods will produce very similar unit
Helpful Hint: Remind students that the only difference
Chapter 4 Process Costing
beginning inventory. In essence, the weighted-average
approach simply combines the units in beginning inventory