In: Accounting

# 1.Provide the differences between a weighted-average method of process costing and a first-in, first-out (FIFO) method...

1.Provide the differences between a weighted-average method of process costing and a first-in, first-out (FIFO) method of process costing

## Solutions

##### Expert Solution

Inventory Methods used in Process costing is Weighted Average method and First-in-First out method. Under weighted Average method, the average cost based on cost of beginning work in process and current cost of manufacturing shall be taken for valuation of units accounted for. While in First in first out method, the valuation is based on the principle that beginning work in process has been completed first and then the units entered in the current month has been finished.

To Determine: The Inventory method of Process Costing has to be differentiated.

Solution: Under process costing, the inventory valuation is based on weighted average method and first in first out method. Under weighted average method, the average cost per unit is computed based on cost of beginning work in process and current cost of manufacturing. And in FIFO, the units completed shall be apportioned among the units completed from beginning work in process and units form current input.

Explanation: Under Weighted average method, the total cost i.e. cost of beginning work in process inventory and cost of current input shall be divided by the equivalent units of production to know the average cost per unit and this cost is used for valuation of units accounted for (i.e. units completed and ending work in process inventory).

The first in first out method is not based on average cost per unit, rather it apportion the units completed in two parts i.e. firstly units in beginning of process has been completed as finished and then the remaining units completed shall be from the current inputs. The units completed from the beginning work in process shall be valued separately based on remaining % of completion left for each element of cost at the end of pervious process. The units completed from current input shall be valued based on cost per complete unit of current period as these units have been completed entirely during the current period in consideration.

Conclusion: To conclude, it can be said that two inventory valuation method is used in Process costing techniques.

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