ACCT2002 Chap.5 Process Costing: Weighted-Average and FIFO
Process Costing: Weighted-Average and FIFO
Process costing averages cost across a continuous flow of similar units. The central challenge is incomplete production: physical units must be translated into equivalent units separately for each cost category, then reconciled to the cost of completed output and ending work in process. This chapter uses the same original scenario to contrast weighted-average and FIFO.
Weighted-average combines beginning inventory work and cost with current-period activity; FIFO isolates work performed this period and therefore gives a cleaner current-period cost rate. Both methods follow the five-step structure stated in the course recap, but they answer slightly different performance questions. A correct solution must reconcile physical units, equivalent units and every dollar.
What this chapter covers
- 01
When process costing is appropriate
- 02
The five-step process-costing procedure
- 03
Physical-unit reconciliation
- 04
Equivalent units by cost category
- 05
Weighted-average cost per equivalent unit
- 06
FIFO cost per equivalent unit
- 07
Cost assignment and reconciliation
- 08
Hybrid-costing systems
Weighted-average equivalent units and cost assignment
- 2Physical units reconcile: 1,000 beginning + 9,000 started = 8,400 completed + 1,600 ending.
- 3Equivalent units are 10,000 for materials (8,400 + 1,600) and 9,040 for conversion (8,400 + 1,600 × 40%).
- 3Combined costs are $54,000 materials and $39,200 conversion. Cost per equivalent unit is $5.40 for materials and $4.336283 for conversion.
- 3Completed output receives 8,400 × ($5.40 + $4.336283) = $81,784.78. Ending work in process receives 1,600 × $5.40 + 640 × $4.336283 = $11,415.22.
- 1Assigned cost totals $93,200, equal to beginning cost of $8,800 plus current cost of $84,400.
Key terms
- Equivalent unit
- The amount of work represented by one fully complete unit.
- Weighted-average method
- A process-costing method combining beginning inventory work and costs with current-period work and costs.
- FIFO process costing
- A method that separates work performed in the current period from work performed previously.
- Degree of completion
- The estimated percentage of processing work completed for a cost category.
- Cost per equivalent unit
- Cost to account for divided by equivalent units for the relevant category.
- Cost reconciliation
- Proof that all costs to account for have been assigned to completed output or ending work in process.
- Hybrid costing
- A system combining features of job and process costing where some attributes are common and others vary by batch or model.
Process Costing: Weighted-Average and FIFO FAQ
Why do materials and conversion have different equivalent units?
They may enter production at different times. Materials added at the start can be fully present in ending units even when labour and overhead conversion work is only partly complete.
What is the conceptual difference between weighted-average and FIFO?
Weighted-average blends prior and current work and cost. FIFO completes beginning inventory first and calculates current-period rates using only work performed and costs incurred this period.
How much rounding is safe?
Retain full precision in cost-per-equivalent-unit calculations and round assigned costs at the end. Early rounding can create an avoidable reconciliation difference.
What are the three reconciliations?
Physical units in equal units out; equivalent units reflect completion by cost category; and total assigned cost equals total cost to account for.
Exam move
Use a fixed five-step worksheet and do not skip the physical flow. Solve the same scenario under weighted-average and FIFO, then explain which current-period inefficiency FIFO makes more visible. Colour-code materials and conversion because their completion patterns differ. After calculating, close the dollar reconciliation without a plug.
For viva practice, explain why equivalent units are a measure of work rather than a count of physical items.
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