Question

• How does the weighted-average method of process costing work? In other words, what makes this different from the FIFO or LIFO version?

Answer 1

Under weighted average method of process costing average cost of goods available for sale is calculated by dividing the total cost of goods available for sale with the the total units of goods. The weighted average cost per unit which is calculated will now be multiplied with the number of units sold how to calculate cost of goods sold and with the number of units in the ending inventory to calculate cost of ending inventory. The weighted average method works on the principle with all the units purchased during the year are equally purchase during the whole year.

Whereas on the other hand under FIFO method goods purchased first are sold first and therefore the cost of goods sold will be from the beginning inventory and the Purchase made at first and ending inventory will be from the purchases made at last.

And in the LIFO method goods purchased last are sold first there for the cost of goods sold will be from the purchases made at last and the ending inventory will be good which are in the beginning inventory and purchases made at first.

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