Beginning Work in Process Inventories
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
You may also be interested in other useful articles from “process costing system – addition of materials and beginning inventory” chapter:
- Increase in Unit Cost Due to Addition of Materials
- Addition of Materials – Increase in units and Change is Unit Cost
- Beginning Work in Process Inventories – Average Costing Method
- Cost of Production Report FIFO
- Average Costing Method Versus FIFO Costing Method – Process Costing
- Difficulties Encountered in Process Costing Procedure
- Discussion Questions and Answers
-
Similarities and Differences between Job Order and Process Costing System
