CMA Study Group

Process Costing

  • 1.  Process Costing

    Posted 16 days ago
    Hi there, Can anyone explain why under FIFO method, the cost of unit (=total cost/total unit) will not include the beginning inventory cost (e.g material:$468,000/Total unit), but under weighted average method it does include (e.g material: ($54,560 + $468,000)/Total unit)? Many thanks
    Trong hình ảnh có thể có: văn bản


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    An Le
    Director/Manager
    Ho Chi Minh
    Viet Nam
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  • 2.  RE: Process Costing

    Posted 15 days ago
    Hi An Le,

    Can anyone explain why under FIFO method, the cost of unit (=total cost/total unit) will not include the beginning inventory cost (e.g material:$468,000/Total unit),--

     Under FIFO Method - Beginning inventory units are separated from the completed and started units and from completed and transfer out units to get current period units. In other words (it is assumed as " Beginning Inventory units are first completed and started units during the period will be completed next.(First in First Out basis)), So for the calculation of Cost per unit, need to take "cost incurred during the period/ Equivalent Units." where as in weighted average method units are not separated from completed and transfer out.
    so cost incurred at the beginning + cost incurred during the period will be taken into account for the calculations of cost per unit.

    but under weighted average method it does include (e.g material: ($54,560 + $468,000)/Total unit)? Many thanks

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    Aruna Jogipet
    Accountant
    Hyderabad
    India
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  • 3.  RE: Process Costing

    Posted 14 days ago
    Thanks for your explanation.

    Btw, I found this document explains very clearly everyone can learn more from this.


    Cheers,
    An