Question

In: Statistics and Probability

explain any difference between the cost of work completed and transferred out and the cost of ending work in process in the Assembly Department under the weighted-average method and the FIF0 method.

FIFO method (continuation of 17-35). Do Problem 17-35 using the FIFO method of process costing. If you did Problem 17-35, explain any difference between the cost of work completed and transferred out and the cost of ending work in process in the Assembly Department under the weighted-average method and the FIF0 method.

Solutions

Expert Solution

FIFO method (continuation of 17-35).

 

The equivalent units of work done in April 2009 in the Assembly Department for direct materials and conversion costs are shown in Solution Exhibit 17-37A.

 

Solution Exhibit 17-37B summarizes the total Assembly Department costs for April 2009, calculates the cost per equivalent unit of work done in April 2009 in the Assembly Department for direct materials and conversion costs, and assigns these costs to units completed (and transferred out) and to units in ending work in process under the FIFO method.

 

The equivalent units of work done in beginning inventory is: direct materials, 75 × 100% = 75; and conversion costs 75 × 40% = 30. The cost per equivalent unit of beginning inventory and of work done in the current period are:

 

 

 

Beginning 

Inventory

Work Done in 

Current Period

(Calculated Under 

FIFO Method)

Direct materials

Conversion costs

$23.67 ($1,775 ÷ 75)

$4.50 ($135 ÷ 30)

 $32

$22

         

The following table summarizes the costs assigned to units completed and those still in process under the weighted-average and FIFO process-costing methods for our example.

 

 

Weighted Average

(Solution Exhibit 17-35B)

 

FIFO

(Solution Exhibit 17-37B)

 

 

 

Difference

Cost of units completed and transferred out

Work in process, ending

Total costs accounted for

$26,000

4,400

$30,400

$25,850

4,550

$30,400

–$150

+$150

         

The FIFO ending inventory is higher than the weighted-average ending inventory by $150. This is because FIFO assumes that all the lower-cost prior-period units in work in process are the first to be completed and transferred out while ending work in process consists of only the higher-cost current-period units. The weighted-average method, however, smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in beginning work in process are placed in ending work in process. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower ending work-in-process inventory relative to the FIFO method.

 

SOLUTION EXHIBIT 17-37A

Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units; 

FIFO Method of Process Costing, Assembly Department of Porter Handcraft for April 2009.

 

 

(Step 1)

(Step 2)

Equivalent Units

 

 

Flow of Production

Physical

Units

Direct

Materials

Conversion

Costs

 

 

Work in process, beginning (given)

Started during current period (given)

To account for

75

550

625

(work done before current period)

Completed and transferred out during current period:

        From beginning work in process·

      75 × (100% - 100%); 75 × (100% - 40%)

 

75

 

 

0

 

 

45

 

        Started and completed 

      425 × 100%; 425 × 100%

425

 

425

 

425

 

Work in process, ending* (given)

      125 ×  100%; 125 ×  20%

125

                

 

125

 

25

 

Accounted for

625

                

                

 

Work done in current period only

 

550

495

 

 
 
 
 
 
 
 

 

·Degree of completion in this department: direct materials, 100%; conversion costs, 40%.

500 physical units completed and transferred out minus 75 physical units completed and transferred out from beginning work-in-process inventory.

*Degree of completion in this department: direct materials, 100%; conversion costs, 20%.

 

SOLUTION EXHIBIT 17-37B

Steps 3, 4, and 5: Summarize Total Costs to Account For, Compute Cost per Equivalent Unit, and Assign Total Costs to Units Completed and to Units in Ending Work in Process;

FIFO Method of Process Costing, Assembly Department of Porter Handcraft for April 2009.

 

 

 

Total

Production

Costs

 

Direct

Materials

 

Conversion

Costs

(Step 3)            Work in process, beginning (given)

$ 1,910

 $ 1,775

 $ 135

            Costs added in current period (given)

28,490

 17,600

10,890

Total costs to account for

$30,400

$19,375

$11,025

(Step 4)            Costs added in current period

 

 $17,600

 $10,890

            Divide by equivalent units of work done in

             current period (Exhibit 17-37A)

 

 

÷ 550

 

÷ 495

            Cost per equivalent unit of work done in current 

             period

 

   

 

$ 32

 

$ 22

(Step 5)            Assignment of costs:

            Completed and transferred out (500 units):

 

 

 

 

 

                 Work in process, beginning (75 units)

                     Costs added to begin. work in process in

  current period

$ 1,910

 

990

 $1,775 + $135

 

 (0* × $32) + (45* × $22)

 

Total from beginning inventory

                 Started and completed (425 units)

                                Total costs of units completed & tsfd. out

            Work in process, ending (125 units)

            Total costs accounted for

2,900

22,950

25,850

4,550

$30,400

 

 (425† × $32) + (425 × $22)

 

(125× $32) + (25# × $22)

$19,375 + $11,025

 
 
 
 
 

 

*Equivalent units used to complete beginning work in process from Solution Exhibit 17-37A, Step 2.

Equivalent units started and completed from Solution Exhibit 17-37A, Step 2.

#Equivalent units in ending work in process from Solution Exhibit 17-37A, Step 2.


Total costs accounted for

2,900

22,950

25,850

4,550

$30,400

 

 (425† × $32) + (425 × $22)

 

(125× $32) + (25# × $22)

$19,375 + $11,025

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