Topic 3 - Chapter 17_ Learning Objective #4 Use the weighted-average method and first-in, first-out (FIFO) method of process

costing Use the weighted-average method of process costing. The weighted-average method of process costing is the simplest process-costing method because no distinction is made between the costs associated with beginning work-inprocess inventory and the costs incurred during the current period. The weighted-average method of process costing calculates the cost per equivalent unit for each cost element or cost pool (direct materials, direct labor, manufacturing overhead) as being equal to the total costs for that cost element or cost pool divided by the total equivalent units for that cost element. Although the cost per equivalent unit is calculated using total costs and total units for the cost element being analyzed, costs are still assigned and tracked separately for ending work-in-process inventory and transferred-out units. Use the first-in, first-out (FIFO) method of process costing. The first-in, first-out (FIFO) method calculates and separates per-unit cost based on the time frame when the work was done. Whereas the weighted-average calculation of equivalent-unit costs for work done in the current period is still total costs divided by total units, the FIFO method calculates the cost of work done in the current period as costs added divided by units added. The FIFO method also assumes that the units and costs in beginning work-in-process inventory are the first units completed and transferred out in the current period. The weighted-average method is the easier method to use, perhaps why it is also the most commonly used process-costing method, but the first-in, first-out (FIFO) method provides managers with better information about changes in costs from one period to the next. Sources: Horngren, Charles T., Datar, Srikant M., Rajan, Madhav. (2012). Cost Accounting: A Managerial Emphasis.14 Edition. Prentice Hall. New York