The FIFO ending inventory is lower than the weighted-average ending inventory by
$17,750. This is because FIFO assumes that all the higher-cost prior-period units in work in
process are the first to be completed and transferred out while ending work in process consists of
only the lower-cost current-period units. The weighted-average method, however, smoothes out
cost per equivalent unit by assuming that more of the lower-cost units are completed and
transferred out, while some of the higher-cost units in beginning work in process are placed in
ending work in process. So, in this case, the weighted-average method results in a lower cost of
units completed and transferred out and a higher ending work-in-process inventory relative to the
FIFO method.
SOLUTION EXHIBIT 17-32A
Steps 1 and 2: Summarize Output in Physical Units and Compute Output in Equivalent Units;
FIFO Method of Process Costing,
Assembly Department of Larsen Company for October 2012.
(Step 1)
Flow of Production
Work in process, beginning (given)
Started during current period (given)
To account for
Completed and transferred out during current
period:
From beginning work in process§
5,000 × (100% − 100%); 5,000 × (100% − 60%)
Started and completed
17,500 ×100%, 17,500 × 100%
Work in process, ending* (given)
2,500 × 100%; 2,500 × 70%
Accounted for
Equivalent units of work done in current period
§
(Step 2)
Equivalent Units
Direct
Conversion
Materials
Costs
Physical
Units
(work done before current period)
5,000
20,000
25,000
5,000
17,000†
2,500
0
2,000
17,500
17,500
2,500
1,750
20,000
______
21,250
25,000
Degree of completion in this department: direct materials, 100%; conversion costs, 60%.
22,500 physical units completed and transferred out minus 5,000 physical units completed and transferred out from
beginning work-in-process inventory.
*Degree of completion in this department: direct materials, 100%; conversion costs, 70%.
†
17-24