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Chapter 18: Q24RQ (page 1006)

When might it be beneficial for a company to use the FIFO method? When is the weighted-average method more practical?

Short Answer

Expert verified

The FIFO method is beneficial when the cost changes significantly, and the weighted average method is beneficial when the cost is not changing significantly.

Step by step solution

01

Step-by-Step Solution:Step 1: Inventory Valuation Method

Inventory valuation can be done by First in, first out, last-in, first-out, or the weighted average method. Each method gives a different inventory valuation. Generally, most companies use the FIFO method.

02

The situation in which the FIFO method is beneficial

The FIFO method is more useful in companies working in an industry where cost changes significantly.

03

The situation in which the weighted average method is beneficial

The weighted average method is beneficial when the business operates in an industry that does not experience significant cost change.

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Most popular questions from this chapter

Roan Paper Co. produces the paper used by wallpaper manufacturers. Roan鈥檚 four-stage process includes mixing, cooking, rolling, and cutting. On March 1, the Mixing Department had 300 rolls of paper in process. During March, the Mixing Department completed the mixing process for those 300 rolls and also started and completed the mixing process for an additional 4,200 rolls of paper. The department started but did not finish the mixing process for an additional 500 rolls, which were 20% complete with respect to both direct materials and conversion work at the end of March. Direct materials and conversion costs are

incurred evenly throughout the mixing process.

The Mixing Department compiledthe following data for March:

Direct materials

Direct labor

Manufacturing overhead allocated

Total costs

Beginning inventory, Mar. 1

\(350

\)245

\(200

\)795

Costs added during March

4,940

3,000

3,225

11,165

Total costs

\(5,290

\)3,245

\(3,425

\)11,960

Requirements

1. Prepare a production cost report for the Mixing Department for March. The company uses the weighted-average method.

2. Journalize all transactions affecting the company鈥檚 mixing process during March. Assume labor costs are accrued and not yet paid.

Preparing a production cost report, second department, withbeginning WIP and transferred in costs; journal entries; FIFO method Work Problem P18-40B using the FIFO method. The Mixing Department beginningwork in process of 400 units is 80% complete as to both direct materials and conversion costs. Round equivalent unit costs to four decimal places. Round all other costs to the nearest dollar.

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: How is the cost per equivalent unit of production calculated?

Bergeron鈥檚 Exteriors produces exterior siding for homes. The Preparation Department begins with wood, which is chopped into small bits. At the end of the process, an adhesive is added. Then the wood/adhesive mixture goes on to the Compression Department, where the wood is compressed into sheets. Conversion costs are added evenly throughout the preparation process. January data for the Preparation Department are as follows:

UNITS

Beginning work-in-process inventory

0 sheets

Started in production

3,900 sheets

Completed and transferred out to compression in January

2,700 sheets

Ending work-in-process inventory (25% of the way through the preparation process)

1,200 sheets

COSTS

Beginning work-in-process inventory

\(0

Costs added during January

Wood

3,120

Adhesive

1,836

Direct labor

990

Manufacturing overhead allocated

2,100

Total costs

\)8,046

Requirements

1. Prepare a production cost report for the Preparation Department for January. The company uses the weighted-average method. (Hint: Each direct material added at a different point in the production process requires its own equivalent unit of production computation.)

2. Prepare the journal entry to record the cost of the sheets completed and

transferred out to the Compression Department.

3. Post the journal entries to the Work-in-Process Inventory鈥擯reparation T-account. What is the ending balance?
See all solutions

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