Beginning Work in Process Inventories
First In First Out (FIFO) Costing Method:
It is possible to keep beginning work in
process inventory costs separate rather than average them in with the
additional new costs incurred in the next period. This procedure gives
separate unit costs (1) for beginning work in process units completed and
(2) for units started and finished in the same period.
Some accountants believe that the beginning
work in process costs should be kept in tact, adding only that portion of
additional costs required to complete units in the beginning work in
process. Under the first in first out (FIFO) costing method, the cost of
completing units in process at the beginning of the period is computed
first,, followed by the computation of the cost of units started and
finished within the period. This procedure leads to at least two different
unit costs for work completed within a specific period. The averaging
process produces only one completed unit cost.
Example:
The Clonex Corporation
Blending Department
Cost of Production Report - FIFO Costing
For the month of February, 19__
|
Quantity Schedule: |
|
|
| Units in
process at beginning (all materials 1/2 labor and factory overhead
FOH) |
4,000 |
|
| Units
started in process |
40,000 |
44,000 |
| |
------- |
===== |
| Units
transferred to next department |
38,000 |
|
| Units
completed and on hand |
1,000 |
|
| Units
still in process (all materials, 2/3 labor and factory overhead) |
3,000 |
|
| Units lost
in process |
2,000 |
44,000 |
| |
------- |
===== |
| Cost
Charged to the Department: |
Total
Cost |
Unit
Cost |
| Work in
process beginning inventory |
$4,440 |
-- |
| Cost
added by department: |
|
|
| Materials |
$19,480 |
$0.522 |
| Labor |
24,180 |
0.620 |
| Factory
overhead (FOH) |
22,580 |
0.579 |
| |
------- |
------ |
| Total cost
added |
$66,600 |
1.721 |
| |
------- |
===== |
| Total cost
to be accounted for |
$71,040 |
|
| |
====== |
|
| Cost
Accounted for as Follows: |
|
|
|
Transferred to next department: |
|
|
| From
beginning inventory: |
|
|
| Inventory cost |
$4,440 |
|
|
| Labor added
(4,000 × 1/2 $1.721 × 0.620) |
1,240 |
|
|
| Factory overhead
(4,000 × 1/2 $1.721 × 0.579) |
1,158 |
$6,638 |
|
| |
------ |
|
|
| From current
production: |
|
|
|
| Units started and
finished (34,000
× $1.721) |
|
58,517* |
|
| Work in Process -
ending inventory: |
|
|
|
| Completed and on hand
(1,000 ×
$1.721) |
|
1,721 |
|
| Materials
(3,000 × 0.522) |
|
1,566 |
|
| Labor
(3,000 × 2/3 × 0.620) |
|
1,240 |
|
| Factory overhead
(3,000 × 2/3 $1.721 × 0.579) |
|
1,158 |
5,685 |
| |
|
------- |
------- |
| |
|
|
$71,040 |
| |
|
|
====== |
*
34,000 units × $1.720 per unit = $58,514. To
avoid decimal discrepancy, the cost transferred from current production is
computed as follows:
$71,040 - ($6,838 + $5,685) = $58,517
Additional Computations:
| Equivalent
Production: |
Materials |
Labor and FOH |
| Transferred out |
38,400 |
38,400 |
| Less beginning
inventory (all units) |
4,000 |
4,000 |
| |
--------- |
--------- |
| Started and finished
this period |
34,000 |
34,000 |
| Add beginning
inventory (Work this period) |
-0- |
2,000 |
| Add ending
inventory: |
|
|
| Completed and on hand |
1,000 |
1,000 |
| still in production |
3,000 |
2,000 |
| |
------- |
------- |
| |
38,000
units |
39,000
units |
| |
|
|
Unit cost:
Materials = $19,840 / 38,000
= $0.522 per unit
Labor = $24,180 / 39,000 =
$0.620 per unit
Factory overhead = $22,580 /
39,000 = $0.579 per unit
|
