Appendix
4A
FIFO Method
4-2
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
1. (Appendix 4A) Compute the equivalent units
of production for a period by the FIFO method.
2. (Appendix 4A) Prepare a quantity schedule for
a period by the FIFO method.
3. (Appendix 4A) Compute the costs per
equivalent unit for a period by the FIFO
method.
4. (Appendix 4A) Prepare a cost reconciliation
for a period by the FIFO method.
5. (Appendix 4B) Compute the cost of lost units
or shrinkage.
© McGraw-Hill Ryerson Limited., 2001
4-3
Equivalent Units of Production –
FIFO Method
The FIFO method . . .
!Separates work done in prior period from work
done in current period.
!Treats units and costs from prior period and
current period independently.
Let’s see how this works!
© McGraw-Hill Ryerson Limited., 2001
4-4
Equivalent Units of Production
Comparison: Double Diamond
Weighted Average Method:
Beginning
WIP
5,000 units started
200 units
4,600 units started
30% complete
and completed
Equivalent units of production:
Units completed and transferred
to next department
WIP, ending
Equivalent units of production
400 units
25% complete
© McGraw-Hill Ryerson Limited., 2001
4-5
Equivalent Units of Production
Comparison: Double Diamond
Weighted Average Method:
Beginning
WIP
5,000 units started
200 units
4,600 units started
400 units
30% complete
and completed
25% complete
Equivalent units of production:
Units completed and transferred
to next department
4,800
WIP, ending
Equivalent units of production
© McGraw-Hill Ryerson Limited., 2001
4-6
Equivalent Units of Production
Comparison: Double Diamond
Weighted Average Method:
Beginning
WIP
5,000 units started
200 units
4,600 units started
400 units
30% complete
and completed
25% complete
Equivalent units of production:
Units completed and transferred
to next department
4,800
WIP, ending: 400 units @25%
100
4,900
Equivalent units of production
© McGraw-Hill Ryerson Limited., 2001
4-7
Equivalent Units of Production
Comparison: Double Diamond
FIFO:
Beginning
WIP
5,000 units started
200 units
4,600 units started
30% complete
and completed
Equivalent units of production:
WIP, beginning
Units started and completed
WIP, ending
Equivalent units of production
400 units
25% complete
© McGraw-Hill Ryerson Limited., 2001
4-8
Equivalent Units of Production
Comparison: Double Diamond
FIFO:
Beginning
WIP
5,000 units started
200 units
4,600 units started
400 units
30% complete*
and completed
25% complete
Equivalent units of production:
WIP, beginning: 200 units @70%*
140
Units started and completed
WIP, ending
Equivalent units of production
*70% work needed to complete these units
© McGraw-Hill Ryerson Limited., 2001
4-9
Equivalent Units of Production
Comparison: Double Diamond
FIFO:
Beginning
WIP
5,000 units started
200 units
4,600 units started
400 units
30% complete*
and completed
25% complete
Equivalent units of production:
WIP, beginning: 200 units @70%*
140
Units started and completed
4,600
WIP, ending
Equivalent units of production
*70% work needed to complete these units
© McGraw-Hill Ryerson Limited., 2001
4-10
Equivalent Units of Production
Comparison: Double Diamond
FIFO:
Beginning
WIP
5,000 units started
200 units
4,600 units started
400 units
30% complete*
and completed
25% complete
Equivalent units of production:
WIP, beginning: 200 units @70%*
140
Units started and completed
4,600
WIP, ending: 400 units @25%
100
Equivalent units of production
*70% work needed to complete these units
© McGraw-Hill Ryerson Limited., 2001
4-11
Equivalent Units of Production
Comparison: Double Diamond
FIFO:
Beginning
WIP
5,000 units started
200 units
4,600 units started
400 units
30% complete*
and completed
25% complete
Equivalent units of production:
WIP, beginning: 200 units @70%*
140
Units started and completed
4,600
WIP, ending: 400 units @25%
100
Equivalent units of production
4,840
*70% work needed to complete these units
© McGraw-Hill Ryerson Limited., 2001
4-12
FIFO Example
Smith Company reported the following activity
in Department A for the month of June:
Percent Comple ted
Work in process, June 1
Units
300
Units started into production in June
6,000
Units comple ted and transferred out
of Department A during June
5,400
Work in process, June 30
900
Ma terials Conversion
40%
20%
60%
30%
© McGraw-Hill Ryerson Limited., 2001
4-13
FIFO Example
Equivalent
Equivalent units
units of
of production
production is
is based
based on:
on:
Beginning
WIP
Inventory
Units started
and
completed
Total Units
available
Units started
into
production
Ending WIP
Inventory
© McGraw-Hill Ryerson Limited., 2001
4-14
FIFO Example
For
For Smith
Smith Company:
Company:
Beginning
WIP
Inventory
(300 units)
Units started
into
production
(6,000 units)
Total Units
available
(6,300 units)
Units started
and
completed
(5,400 units)
Ending WIP
Inventory
(900 units)
© McGraw-Hill Ryerson Limited., 2001
4-15
FIFO Example
For
For Smith
Smith Company:
Company:
Beginning
WIP
Inventory
(300 units)
Total Units
available
Made up
of:
(6,300
units)
Units started
Beginning WIP
of 300
units
intoand 5,100 (6,000-900) units
production
that were started and
(6,000 units) completed
Units started
and
completed
(5,400 units)
Ending WIP
Inventory
(900 units)
© McGraw-Hill Ryerson Limited., 2001
4-16
FIFO Example
Equivalent units are calculated as follows:
Materials
Work in process, June 1:
300 units @60% to complete
Conversion
180
Units started and completed
Work in process, June 30:
Equivalent units of Production in
Department A during June
© McGraw-Hill Ryerson Limited., 2001
4-17
FIFO Example
Equivalent units are calculated as follows:
Materials
Work in process, June 1:
300 units @60% to complete
300 units @80% to complete
Conversion
180
240
Units started and completed
Work in process, June 30:
Equivalent units of Production in
Department A during June
© McGraw-Hill Ryerson Limited., 2001
4-18
FIFO Example
Equivalent units are calculated as follows:
Materials
Work in process, June 1:
300 units @60% to complete
300 units @80% to complete
180
Units started and completed
5,100
Conversion
240
5,100
Work in process, June 30:
Equivalent units of Production in
Department A during June
© McGraw-Hill Ryerson Limited., 2001
4-19
FIFO Example
Equivalent units are calculated as follows:
Materials
Work in process, June 1:
300 units @60% to complete
300 units @80% to complete
180
Units started and completed
5,100
Work in process, June 30:
900 units @ 60% complete
Conversion
240
5,100
540
Equivalent units of Production in
Department A during June
© McGraw-Hill Ryerson Limited., 2001
4-20
FIFO Example
Equivalent units are calculated as follows:
Materials
Work in process, June 1:
300 units @60% to complete
300 units @80% to complete
180
Units started and completed
5,100
Work in process, June 30:
900 units @ 60% complete
900 units @ 30% complete
Conversion
240
5,100
540
270
Equivalent units of Production in
Department A during June
© McGraw-Hill Ryerson Limited., 2001
4-21
FIFO Example
Equivalent units are calculated as follows:
Materials
Work in process, June 1:
300 units @60% to complete
300 units @80% to complete
180
Units started and completed
5,100
Work in process, June 30:
900 units @ 60% complete
900 units @ 30% complete
Equivalent units of Production in
Department A during June
Conversion
240
5,100
540
270
5,820
5,610
© McGraw-Hill Ryerson Limited., 2001
4-22
FIFO Example
Materials
Materials
Beginning
Work in Process
300 Units
40% Complete
6,000 Units Started
5,100 Units Started
and Completed
Ending
Work in Process
900 Units
60% Complete
300 x 60% 180 Equivalent Units
5,100 Units Started and Completed
900 × 60%
540 Equivalent Units
5,820 Equivalent units
of production
© McGraw-Hill Ryerson Limited., 2001
4-23
FIFO Example
Conversion
Conversion
Beginning
Work in Process
300 Units
20% Complete
6,000 Units Started
5,100 Units Started
and Completed
Ending
Work in Process
900 Units
30% Complete
300 x 80% 240 Equivalent Units
5,100 Units Started and Completed
900 × 30%
270 Equivalent Units
5,610 Equivalent units
of production
© McGraw-Hill Ryerson Limited., 2001
4-24
Production Report Example
" Double Diamond Skis uses process costing to
determine unit costs in its Shaping and Milling
Department.
" Double Diamond uses the FIFO cost
procedure.
" Using the following information for the month of
May, let’s prepare a production report for
Shaping and Milling.
© McGraw-Hill Ryerson Limited., 2001
4-25
Production Report Example
Work in process, May 1: 200 units
Materials:
50% complete.
Conversion:
30% complete.
Units started into production in May:
Units completed and transferred out in May:
Costs added to production in May
Materials cost
Conversion cost
$
Cost
3,000
1,000
5,000
4,800
$ 74,000
70,000
Work in process, May 31: 400 units
Materials
40% complete.
Conversion
25% complete.
© McGraw-Hill Ryerson Limited., 2001
4-26
Production Report Example
Section 1: Quantity Schedule with Equivalent Units
Units to be accounted for:
Work in process, May 1
Started into production
Total units
200
5,000
5,200
Equivalent units
Materials
Conversion
Units accounted for as follows:
Beginning WIP (to complete)
200 units @50%
200 units @70%
Completed and transferred
Ending WIP, May 31
400 units @40%
400 units @25%
200
100
4,600
400
4,600
140
4,600
160
5,200
4,860
100
4,840
© McGraw-Hill Ryerson Limited., 2001
4-27
Production Report Example`
Section 2: Compute cost per equivalent unit
Total
Cost
Cost to be accounted for:
Work in process, May 1
Costs added in the Shipping
and Milling Department
Total cost
Equivalent units
$
Materials
Conversion
$
$
4,000
144,000
74,000
70,000
$ 148,000
4,860
4,840
© McGraw-Hill Ryerson Limited., 2001
4-28
Production Report Example`
Section
cost per equivalent unit
Only 2:
theCompute
cost associated
with current production isTotal
allocated to materials Cost
and conversion
Cost to be accounted for:
Work in process, May 1
Costs added in the Shipping
and Milling Department
$
Total cost
$ 148,000
Equivalent units
Materials
Conversion
$
$
4,000
144,000
74,000
4,860
70,000
4,840
© McGraw-Hill Ryerson Limited., 2001
4-29
Production Report Example`
Section 2: Compute cost per equivalent unit
Total
Cost
Cost to be accounted for:
Work in process, May 1
Costs added in the Shipping
and Milling Department
Total cost
Equivalent units
Cost per equivalent unit
$
Materials
Conversion
$
$
4,000
144,000
74,000
70,000
$ 148,000
4,860
4,840
15.226
$74,000 ÷ 4,860 units = $15.226 (rounded)
© McGraw-Hill Ryerson Limited., 2001
4-30
Production Report Example
Section 2: Compute cost per equivalent unit
Total
Cost
Cost to be accounted for:
Work in process, May 1
Costs added in the Shipping
and Milling Department
Total cost
Equivalent units
$
Materials
Conversion
4,000
144,000
74,000
70,000
4,860
4,840
$ 148,000
Cost per equivalent unit
$ 15.226
Total cost per equivalent unit = $15.226 + $14.463 = $29.689
$
14.463
$70,000 ÷ 4,840 units = $14.463 (rounded)
© McGraw-Hill Ryerson Limited., 2001
4-31
Production Report Example
Section 3: Cost Reconciliation
Start with cost of WIP
from last month
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-32
Production Report Example
Section 3: Cost Reconciliation
100 units x $15.226
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-33
Production Report Example
Section 3: Cost Reconciliation
140 units x $14.463
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-34
Production Report Example
Section 3: Cost Reconciliation
4,600 units x $29.689
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-35
Production Report Example
Section 3: Cost Reconciliation
This represents all of
the total costs
out
Costtransferred
accounted for
as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-36
Production Report Example
Section 3: Cost Reconciliation
160 units x $15.226
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-37
Production Report Example
Section 3: Cost Reconciliation
100 units x $14.463
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-38
Production Report Example
Section 3: Cost Reconciliation
Total cost of ending
work in process
Cost accounted for as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-39
Production Report Example
Section 3: Cost Reconciliation
Must agree to section
called “Cost to be
for”
Costaccounted
accounted for
as follow s:
W ork in process, May 1:
Cost in beg. W IP
Materials
Conversion
Transferred out during May
Total cost transferred
Work in process, May 31:
Materials
Conversion
Total w ork in process, May 31
Total cost accounted for
Total
Cost
4,000
1,523
2,025
136,570
144,118
2,436
1,446
Equivalent Units
Materials Conversion
100
4,600
140
4,600
160
100
3,882
148,000
© McGraw-Hill Ryerson Limited., 2001
4-40
End of Chapter 4 - Appendix
© McGraw-Hill Ryerson Limited., 2001