Effects of Beginning and Ending Work in Process Inventories
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Four steps in process costing
1.
Analyse the physical flow of units
2.
Calculate the equivalent units
3.
Calculate the unit costs
4.
Analyse the total costs
Effects of Beginning and Ending Work in Process
Effects of Beginning and Ending Work in Process Inventories (cont.)Inventories (cont.)
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•Products are costed using one of two Products are costed using one of two assumptions about the physical flow of assumptions about the physical flow of inventoryinventory
-Weighted average methodWeighted average method
-FirstFirst–in, firstin, first–out (FIFO) methodout (FIFO) method
Weighted Average Method, Spritz Mixing
Weighted Average Method, Spritz Mixing DepartmentDepartment
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•Step 1: Analyse the physical flow of unitsStep 1: Analyse the physical flow of units
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•Step 2: Calculate the equivalent unitsStep 2: Calculate the equivalent units
Weighted Average Method, Spritz Mixing Department
Weighted Average Method, Spritz Mixing Department(cont.)(cont.)
Step 3: Calculate the unit costs
Step 3: Calculate the unit costs
Weighted average method, Spritz mixing department
Weighted average method, Spritz mixing department (cont.)(cont.)
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•Step 4: Analyse the total costsStep 4: Analyse the total costs
Weighted average method, Spritz mixing department
Weighted average method, Spritz mixing department (cont.)(cont.)
Departmental production report
Departmental production report
FIFO Method, Spritz Mixing Department
FIFO Method, Spritz Mixing Department
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•Step 1: Analyse the physical flow of unitsStep 1: Analyse the physical flow of units
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•Step 2: Calculate the equivalent unitsStep 2: Calculate the equivalent units
FIFO Method, Spritz Mixing Department (cont.)
FIFO Method, Spritz Mixing Department (cont.)
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•Step three: Calculate the unit costsStep three: Calculate the unit costs
FIFO Method, Spritz Mixing Department (cont.)
FIFO Method, Spritz Mixing Department (cont.)
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•Step 4: Analyse the total costsStep 4: Analyse the total costs
FIFO Method, Spritz Mixing Department (cont.)
FIFO Method, Spritz Mixing Department (cont.)
Departmental production report
Departmental production report
Comparison of Weighted Average and FIFO Methods
Comparison of Weighted Average and FIFO Methods
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•The key difference is the treatment of the The key difference is the treatment of the beginning WIPbeginning WIP
-Under the weighted average method the cost of Under the weighted average method the cost of beginning WIP and equivalent units of work done beginning WIP and equivalent units of work done on it are included in the calculation of the average on it are included in the calculation of the average cost per equivalent unitcost per equivalent unit
-Under FIFO the cost per equivalent unit is based Under FIFO the cost per equivalent unit is based only on costs incurred in the current month divided only on costs incurred in the current month divided by the equivalent units of work done in the current by the equivalent units of work done in the current month.month.
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