4.6 A major advantage of FIFO is that managers can judge the performance in the current period independently from the performance in the preceding period. 4.7 The journal entries in process costing are basically like those made in job-costing systems. The main difference is that, in process costing, there is often more than one work-in-progress account – one for each process. 4.8 There are two reasons why the accountant should distinguish between transferred-in costs and additional direct materials costs for a particular department a All direct materials may not be added at the beginning of the department process. b The control methods and responsibilities maybe different for transferred-in items and materials added in this department. 4.9 No. Previous department costs (also called transferred-in costs) are costs incurred in a previous department that have been charged to a subsequent department. These costs maybe costs incurred in that previous department during this accounting period or a preceding accounting period. 4.10 Materials are only one cost item. Other items (often included in a conversion costs pool) include labour, energy and maintenance. If the costs of these items vary overtime, this variability can cause a difference when weighted average or FIFO is used. A second factor is the amount of stock on hand at the beginning or end of an accounting period. The smaller the amount of production held in opening or closing stock relative to the total number of units transferred out, the smaller the effect on operating income or stock amounts from use of weighted average or FIFO.
