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Chapter 18: Q22RQ (page 1006)

Describe how the FIFO method is different from the weighted-average method.

Short Answer

Expert verified

FIFO and the weighted average method arethe inventory valuation model. The main difference between these isthat goods purchased firstly are sold on a priority basis in the FIFO method. In the weighted average method, inventory is sold at an average rate at the average inventory level.

Step by step solution

01

Step-by-Step Solution:Step 1: Inventory

Inventory means the goods or materials, hold by the company either for sale of for using in production process. It is classified as the current assets in the company鈥檚 balance sheet.

02

FIFO

Under the First in, first-out method of inventory valuation, the first purchased goods are sold first in the market. It is the accounting method used by the company to value its inventory. Companies use this method to clear out their oldest inventory on a priority basis.

03

Weighted average method

Under weighted average method, the total cost of the inventory available for sale in the market is divided by the total number of the inventory to compute the weighted average cost of the units sold.

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Most popular questions from this chapter

Describe the three groups of units that must be accounted for when using the FIFO method.

Question: The Mixing Department of Complete Foods had 62,000 units to account for in October. Of the 62,000 units, 38,000 units were completed and transferred to the next department, and 24,000 units were 20% complete. All of the materials are added at the beginning of the process. Conversion costs are added evenly throughout the mixing process and the company uses the weighted-average method.

Compute the total equivalent units of production for direct materials and

conversion costs for October.

Question: Refer to Short Exercises S18-8 and S18-9. Use Complete Foods鈥檚 costs per equivalent unit of production for direct materials and conversion costs that you calculated in Short Exercise S18-9.

Calculate the cost of the 38,000 units completed and transferred out and the

24,000 units, 20% complete, in the ending Work-in-Process Inventory.

Question: Describe the flow of costs through a process costing system.

Match the following terms to their definitions.

1. Direct labor plus manufacturing

Overhead

a. Expresses partially completed units in terms of fully completed units

2. Prepared by department for EUP, production costs, and assignment of costs

b. Used by companies that manufacture

homogenous products

3. Equivalent units of production

c. Previous costs brought into later

process

4. Process costing system

d. Conversion costs

5. Transferred in costs

e. Combines prior period costs with current period costs

6. Weighted-average method

f. Production cost report
See all solutions

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