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Chapter 18: Q22RQ (page 1006)

Describe how the FIFO method is different from the weighted-average method.

Short Answer

Expert verified

FIFO and the weighted average method arethe inventory valuation model. The main difference between these isthat goods purchased firstly are sold on a priority basis in the FIFO method. In the weighted average method, inventory is sold at an average rate at the average inventory level.

Step by step solution

01

Step-by-Step Solution:Step 1: Inventory

Inventory means the goods or materials, hold by the company either for sale of for using in production process. It is classified as the current assets in the company’s balance sheet.

02

FIFO

Under the First in, first-out method of inventory valuation, the first purchased goods are sold first in the market. It is the accounting method used by the company to value its inventory. Companies use this method to clear out their oldest inventory on a priority basis.

03

Weighted average method

Under weighted average method, the total cost of the inventory available for sale in the market is divided by the total number of the inventory to compute the weighted average cost of the units sold.

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Most popular questions from this chapter

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

Question: If a company began the month with 50 units in process, started another 600 units during the month, and ended the month with 75 units in process, how many units were completed?

Cheerful Colors manufactures crayons in a three-step process: mixing, molding, and packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the

process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on March 1, 2018, consisted of 800 batches of crayons that were 10% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was \(32,800, which consisted of \)14,000 in direct materials costs and $18,800 in conversion costs. During March, 5,200 batches were started in production. The Mixing Department transferred 3,000 batches to the Molding Department in March, and 3,000 were still in process on March 31. This ending inventory was 80% of the way through the mixing process. Cheerful Colors uses FIFO process costing.

At March 31, before recording the transfer of costs from the Mixing Department

to the Molding Department, the Cheerful Colors general ledger included the following account:

Work-in-process inventory – Mixing

Balance, March 1

32,800

Direct materials

42,000

Direct labor

24,610

Manufacturing overhead

65,830

Requirements

1. Prepare a production cost report for the Mixing Department for March. Round

equivalent unit of production costs to four decimal places. Round all other costs to the nearest whole dollar.

2. Journalize all transactions affecting the Mixing Department during March, including the entries that have already been posted. Assume labor costs are accrued and not yet paid.

Describe the three groups of units that must be accounted for when using the FIFO method.

Question: Mayhem Electronics makes game consoles in three processes: assembly, programming, and packaging. Direct materials are added at the beginning of the assembly process. Conversion costs are incurred evenly throughout the process. The Assembly Department had no Work-in-Process Inventory on March 31. In mid-April, Mayhem Electronics started production on 99,000 game consoles. Of this number, 95,000 game consoles were assembled during April and transferred out to the Programming Department. The April 30 Work-in-Process Inventory in the Assembly Department was 45% of the way through the assembly process. Direct materials costing \(301,950 were placed in production in Assembly during April, direct labor of \)100,960 was assigned, and manufacturing overhead of $136,200 was allocated to that department.

Requirements

1. Prepare a production cost report for the Assembly Department for April. The

company uses the weighted-average method.

2. Prepare a T-account for Work-in-Process Inventory—Assembly to show its activity during April, including the April 30 balance.
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