University:
Grand Rapids Community College
Course:
Financial and Managerial Accounting: Information for Decisions - John J. Wild
Academic year:

2024
Views:

168

Pages:

2
Author:

stud_ice13

In a FIFO process costing system, we follow four primary steps to allocate production costs efficiently and prepare a production cost report. Below is a breakdown of each step and an example to illustrate these calculations. Step-by-Step Illustration for GenX's FitMix Production (Roasting Department) GenX's FitMix production in the Roasting department provides an example where FIFO is used to trace and assign costs accurately to the units. Here’s the detailed approach for the FIFO method: 1. Determine Physical Flow of Units To account for production in FitMix's Roasting department: o Units to Account For: 30,000 units in beginning work-in-process (WIP) inventory and 90,000 units started, totaling 120,000 units. o Units Accounted For: We categorize these into three groups:  Beginning WIP: 30,000 units completed from previous periods.  Started and Completed: 70,000 units were initiated and finished this period.  Ending WIP: 20,000 units remain in process at the end of the period. 2. Compute Equivalent Units of Production (EUP) EUP calculates the number of complete units based on cost and effort incurred: o For Direct Materials:  Beginning WIP adds no new material (as it was 100% complete previously).  Started and Completed (70,000 units) received 100% of materials.  Ending WIP (20,000 units) received all necessary materials, so EUP for materials = 90,000 units. o For Conversion Costs:  Beginning WIP (30,000 units) was 65% complete, so the remaining 35% represents 10,500 EUP.  Started and Completed units received 100% of conversion costs, totaling 70,000 EUP.  Ending WIP was 25% complete for conversion, resulting in 5,000 EUP. o Total EUP: 85,500 for conversion and 90,000 for direct materials. 3. Compute Cost per Equivalent Unit (EUP) The costs per EUP are calculated using current period costs: o Direct Materials Cost per EUP: Total materials costs of $279,000 / 90,000 EUP = $3.10. Conversion Cost per EUP: Conversion costs of $376,200 / 85,500 EUP = $4.40. 4. Assign and Reconcile Costs Using calculated EUP and cost per EUP, we assign costs to units: o Completed and Transferred Out:  Beginning WIP: $189,900 (prior costs).  To complete Beginning WIP: $0 for materials (already added) and $46,200 for conversion.  Started and Completed: $217,000 for materials and $308,000 for conversion.  Total = $761,100. o Ending WIP:  Materials = 20,000 EUP * $3.10 = $62,000.  Conversion = 5,000 EUP * $4.40 = $22,000.  Total = $84,000. o The complete Production Cost Report (Exhibit 16A.10) integrates physical flow, equivalent units, costs per unit, and assigned costs, concluding with a final reconciliation that ensures all costs are accounted for. Key Insights on FIFO in Process Costing: The FIFO method isolates currentperiod costs, which is especially useful in scenarios with inventory or cost fluctuations. In a lean or just-in-time system where inventories are minimized, FIFO and weighted-average methods produce similar results as there is little or no beginning inventory to consider.