/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 8 Describe the distinctive charact... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 17: Problem 8

Describe the distinctive characteristic of FIF0 computations in assigning costs to units completed and to units in ending work in process.

Short Answer

Expert verified
The distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in process is the chronological order in which costs are assigned. Under the FIFO method, the costs of the earliest units entering the production process are the first to be assigned to completed units, and the opening work in process inventory is considered when assigning costs. This method involves calculating equivalent units of production, computing cost per equivalent unit, and multiplying these by the number of equivalent units assigned to the completed units and the units in the ending work in process inventory.

Step by step solution

01

Definition of FIFO

FIFO stands for First-In, First-Out, and is a cost flow assumption used in process costing. It assumes that the costs of the earliest units entering the production process are the first to be assigned to the completed units and that costs flow through the production process in the same order as units. This method is different from other cost flow assumptions like Weighted Average, as the focus is on the chronological order of costs.
02

Identify costs assigned to completed units

To assign costs under the FIFO method, first, identify the costs brought forward from the previous period as the beginning work in process inventory. Next, add any new costs incurred in the current period for the units completed. The sum of these costs will be assigned to the units completed in the current period.
03

Identify costs assigned to units in the ending work in process

After assigning costs to the completed units, compute the total costs incurred in the current period. This includes the costs carried over from the previous period and the costs added in the current period. Now, subtract the costs assigned to completed units from this total to obtain the costs assigned to the units that remain in the ending work in process inventory.
04

Calculate the equivalent units of production

To assign costs to units completed and units in the ending work in process inventory, you need to calculate the equivalent units of production for each cost category. You can do this by multiplying the proportion of work done on the units in each cost category by the number of physical units. In the case of FIFO, it is important to consider the degree of completion for both beginning work in process and ending work in process separately.
05

Compute cost per equivalent unit

Now that you have calculated the equivalent units of production and the costs incurred in each cost category, divide the total costs in each category by the equivalent units of production to find the cost per equivalent unit.
06

Assign costs to units completed and units in the ending work in process

Finally, multiply the cost per equivalent unit by the number of equivalent units assigned to the completed units and the units in the ending work in process inventory. This will give you the cost assigned to units completed and to units in the ending work in process, under the FIFO method. In summary, the distinctive characteristic of FIFO computations in assigning costs to units completed and to units in ending work in process is the chronological order in which costs are assigned. The FIFO method ensures that the costs of the earliest units are assigned first, and thus, the opening work in process inventory is taken into account when assigning costs.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

Key Concepts

These are the key concepts you need to understand to accurately answer the question.

Process Costing
Process costing is a method used in cost accounting that applies primarily to manufacturing environments where goods are mass-produced in a continuous flow. It is ideal for industries like chemicals, textiles, and food production.

With process costing:
  • Costs are assigned to each process or department passed through during production.
  • It helps in allocating expenses smoothly over large numbers of homogeneous units.
In this system, costs are averaged over units, making it efficient for uniform products. This contrasts with job-order costing, where costs are traced to individual jobs.
Cost Flow Assumptions
Cost flow assumptions refer to methods employed by businesses to assign costs to inventory and cost of goods sold. Different methods such as FIFO (First-In, First-Out), LIFO (Last-In, First-Out), and Weighted Average are commonly used.

The FIFO method in particular assumes that:
  • The oldest costs are the first to be transferred to cost of goods sold.
  • The closing inventory comprises the most recent costs.
This assumption can affect the financial outcomes reported in different economic conditions, particularly around inflation or deflation.
Equivalent Units of Production
The concept of equivalent units of production is used in process costing to convert partially completed units into a number of equivalent fully completed units. This is important because it provides a way to measure the actual work done during the period on both completed and partially completed units.

Equivalent units are calculated as follows:
  • Multiply the percentage of completion by the number of physical units.
  • This is done separately for each cost category (e.g., materials, labor).
This step ensures accuracy in assigning costs across units at different stages of completion.
Completed Units
In process costing, completed units refer to those units that have finished the entire production process and are ready for sale. Using the FIFO method, the cost attributed to these units includes not only the direct material costs but also labor and manufacturing overhead costs incurred during the current period.

Key points about completed units under FIFO include:
  • Costs from the beginning work in process are assigned first.
  • Any additional costs incurred in the current period are added.
This cost assignment ensures that older costs are reflected in the cost of goods sold first.
Work in Process Inventory
Work in process (WIP) inventory includes all materials or products that are in the middle of the production process but are not yet complete. Under the FIFO method, ongoing work from a previous period is accounted for separately from newly introduced costs in the current period.

Important details for WIP inventory are:
  • The FIFO method emphasizes separating beginning and ending inventory costs.
  • Costs assigned to ending WIP include only those incurred in the current period.
This distinction can help in precisely calculating production costs and improving inventory management.

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Hoffman Company, as you know, is a manufacturer of car seats. Each car seat passes through the assembly department and testing department. This problem focuses on the testing department. Direct materials are added when the testing department process is \(90 \%\) complete. Conversion costs are added evenly during the testing department's process. As work in assembly is completed, each unit is immediately transferred to testing. As each unit is completed in testing, it is immediately transferred to Finished Goods. Hoffman Company uses the weighted-average method of process costing. Data for the testing department for 0 ctober 2017 are as follows: $$\begin{array}{lcccc} & \begin{array}{c} \text { Physical Units } \\ \text { (Car Seats) } \end{array} & \begin{array}{c} \text { Transferred- } \\ \text { In costs } \end{array} & \begin{array}{c} \text { Direct } \\ \text { Materials } \end{array} & \begin{array}{c} \text { Conversion } \\ \text { costs } \end{array} \\ \hline \text { Work in process, 0ctober 1 }^{\mathbf{2}} & 5,500 & \$ 2,931,000 & \$ & 0 & \$ 499,790 \\ \text { Transferred in during 0ctober 2017 } & \multicolumn{2}{c} {?} \\ \text { Completed during 0ctober 2017 } & \multicolumn{2}{c} {29,800} \\ \text { Work in process, 0ctober 31 }^{\mathbf{b}} & 1,700 & & & \\ \text { Total costs added during 0ctober 2017 } & & \$ 8,094,000 & \$ 10,877,000 & \$ 4,696,260 \end{array}$$ "Degree of completion: transferred-in costs,? \(\% ;\) direct materials, \(? \%\); conversion costs, \(65 \%\) 'Degree of completion: transferred-in costs, ? \(\$ 5 ;\) direct materials, \(? \% ;\) conversion costs, \(45 \%\) 1\. What is the percentage of completion for (a) transferred-in costs and direct materials in beginning work-in-process inventory and (b) transferred-in costs and direct materials in ending work-in-process inventory? 2\. For each cost category, compute equivalent units in the testing department. Show physical units in the first column of your schedule. 3\. For each cost category, summarize total testing department costs for October 2017 , calculate the cost per equivalent unit, and assign costs to units completed (and transferred out) and to units in ending work in process. 4\. Prepare journal entries for 0 ctober transfers from the assembly department to the testing department and from the testing department to Finished Goods.

Equivalent units, zero beginning inventory. Candid, Inc. is a manufacturer of digital cameras. It has two departments: assembly and testing. In January 2017 , the company incurred \(\$ 800,000\) on direct materials and \(\$ 805,000\) on conversion costs, for a total manufacturing cost of \(\$ 1,605,000\) 1\. Assume there was no beginning inventory of any kind on January 1,2017 . During January, 5,000 cameras were placed into production and all 5,000 were fully completed at the end of the month. What is the unit cost of an assembled camera in January? 2\. Assume that during February 5,000 cameras are placed into production. Further assume the same total assembly costs for January are also incurred in February, but only 4,000 cameras are fully completed at the end of the month. All direct materials have been added to the remaining 1,000 cameras. However, on average, these remaining 1,000 cameras are only \(60 \%\) complete as to conversion costs. (a) What are the equivalent units for direct materials and conversion costs and their respective costs per equivalent unit for February? (b) What is the unit cost of an assembled camera in February \(2017 ?\) 3\. Explain the difference in your answers to requirements 1 and 2

Sepulveda Corporation uses a process costing system to manufacture laptop PCs. The following information summarizes operations for its Verylite model during the quarter ending March 31 Year 1: $$\begin{array}{lcc} & & \text { Direct } \\ & \text { Units } & \text { Materials } \\ \hline \text { Work-in-process inventory, January 1 } & 100 & \$ 60,000 \\ \text { Started during the quarter } & 500 & \\ \text { Completed during the quarter } & 400 & \\ \text { Work-in-process inventory, March 31 } & 200 & \\ \text { costs added during the quarter } & & \$ 840,000 \end{array}$$ Beginning work-in-process inventory was \(50 \%\) complete for direct materials. Ending work-in-process in ventory was \(75 \%\) complete for direct materials. What were the equivalent units for direct materials for the quarter using the FIF0 method? 1\. 450 2\. 500 3\. 550 4\. 600

Why should the accountant distinguish between transferred-in costs and additional direct materials costs for each subsequent department in a process- costing system?

Name the five steps in process costing when equivalent units are computed.
See all solutions

Recommended explanations on Math Textbooks

Calculus

Read Explanation

Statistics

Read Explanation

Mechanics Maths

Read Explanation

Applied Mathematics

Read Explanation

Theoretical and Mathematical Physics

Read Explanation

Probability and Statistics

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.