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.