Wip method in two ways units started completed the

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Unformatted text preview: The computation of equivalent units - Units started, but partially completed (ending WIP) • The way in which the costs of beginning inventory are treated Wang 2013 26 Equivalent Units of Production-FIFO Method • The First-in, First-out Method – Equivalent units are the sum of • Units finished in beginning Work-In-Process • Units started and completed • Units started, but partially completed (ending Work-InProcess) – Consider current work done only • The unit costs are based entirely on the production costs incurred during the period • The costs in the beginning WIP are irrelevant Wang 2013 27 Equivalent Units of Production-FIFO Method Units Units to be accounted for WIP, June 1 (40% completed) Started into production Total Units Production 500 8,000 Completed and transferred out 8,100 WIP, June 30 (75% completed) 400 Wang 2013 WIP, June 1 500 60% 300 Started and Completed 8,500 Units accounted for Total Units Work completed in Equivale Units the current nt Units period 7,600 100% 7,600 400 75% 300 WIP, June 30 Total 8,500 8,200 8,500 28 Equivalent Units of ProductionSummary • Weighted-Average vs. FIFO – Weighted-Average Main reason for calculating cost is for mgmt to come up with pricing; if not as accurate, can't come up with the best pricing • Simple to understand and apply • If prices do not fluctuate significantly, the weighted-average method is similar to FIFO • The weighted-average method is similar to FIFO method, if a manufacturer has minimal inventory balances – FIFO • Superior to the weighted-average in cost control – FIFO does not mix costs of the current period with costs of the prior period • Provide current cost information – Establish more accurate pricing strategies for goods manufactured and sold in the current period Wang 2013 29 Equivalent Units of Production-FIFO Method Spring Company uses the FIFO method for inventory valuation. All materials are added at the beginning of the process. All other manufacturing inputs ar...
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