Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed

Download 1.72 Mb.

View original pdf

Page	103/469
Date	01.12.2021
Size	1.72 Mb.
	#57828

1 ... 99 100 101 102 103 104 105 106 ... 469

solutions-manual-to-bhimani-et-al-management-and-cost-accounting-pearson-2012-1

Weighted average (Solution Exhibit 4.24C) FIFO (Solution Exhibit 4.24B) Difference

Opening
stock
Work done in
current period
Transferred-in costs (FIFO)
Transferred-in costs (weighted average) Direct materials Conversion costs
€35.50 35.04
–
24.167
€52 51.783 11 20 The following table summarises the costs assigned to units completed and those still in progress under the weighted-average and FIFO process-costing methods for our example.

Weighted average
(Solution Exhibit
4.24C)
FIFO
(Solution Exhibit
4.24B)

Difference
Cost of units completed and transferred out Work in progress, closing Total costs accounted for
€168,552 21,948
€190,500
€166,723 23,113
€189,836
+€1,829
−€1,165
The FIFO closing stock is higher than the weighted-average closing stock by €1,165. This is because FIFO assumes that all the lower-cost prior-period units in work in progress (resulting from the lower transferred-in costs in opening stock) are the first to be completed and transferred out while closing work in progress consists of only the higher-cost current-period units. However, the weighted-average method smoothes out cost per equivalent unit by assuming that more of the higher-cost units are completed and transferred out, while some of the lower-cost units in opening work in progress are placed in closing work in progress. Hence, in this case, the weighted-average method results in a higher cost of units completed and transferred out and a lower closing work-in-progress stock relative to FIFO. Note that the difference in cost of units completed and transferred outdoes not fully offset the difference in closing work-in-progress stock (−€1,165). This is because the FIFO and weighted- average methods result indifferent values for transferred-in costs with respect to both opening stock and costs transferred in during the period.

66
© Pearson Education Limited 2012

Download 1.72 Mb.

Share with your friends:

1 ... 99 100 101 102 103 104 105 106 ... 469