AVERAGE AND FIFO

costing
John Michael Cedric N. Nalus
Certified Poging Accountant
Work in Process Inventory
Beginning balance Completed &
Transferred
Cost from Preceding
Department
Current Period Cost

Ending balance
 Beginning balance

Units EU Costs
Methods of costing under Process
Costing

1. FIFO Method
2. Average Method
Methods of costing under Process
Costing

FIFO Method
 There is a flow that the first placed
into the process are presumed to be
the first ones completed and those
that are first completed are the ones
transferred out.
Methods of costing under Process
Costing

Average Method
 There is no assumed flow of
manufacturing wherein it merges the
initial WIP inventory costs and the
costs incurred in the current month to
have an average unit cost
 FIFO Method
VS
Average Method
 Computation of Equivalent Unit
FIFO Average
Work done for beginning Work done last month is
WIP Inventory is remaining ignored, thus, beginning
work needed to make the inventory units are mixed
units complete (100% - with completed and WIP
WDLM). EU for started end units. EU is normally
and completed and WIP computed.
end is normally computed.
Problem 2 - FIFO
Problem 2 - Average
 Computation of Unit Cost
FIFO Average
Current Period Costs Cost of Beg. WIP + Current
Period Cost
÷ ÷
EU of Current WD EU of Beg. WIP + EU of
+ Current WD
+
Unit cost from Prec. Dept. Unit cost from Prec. Dept.
(CFPD from beg. WIP+CFPD
*This excludes the cost and from Transferred in / Total
units of Beginning WIP Units)
Problem 4 - FIFO
Problem 4 - FIFO
Problem 4 - Average
Problem 4 - Average
 Computation of Completed Units
FIFO Average
Cost of Beg. WIP
+ EU of Completed &
Current Period Cost to Transferred
complete Beg. WIP
+ X
Cost of Started & Weighted Ave. Unit Cost
Completed Units
 Computation of Ending WIP
Inventory
FIFO Average

EU of Ending WIP EU of Ending WIP

X X
Unit Cost Weighted Ave.
Unit Cost
YOU DO NOTE!
YOU DO NOTE!
Cost of completed &
transferred is greater in FIFO
Method compared to Average
Method
YOU DO NOTE!
Cost of WIP Inventory end is
less in FIFO Method compared
to Average Method
Problem 5 - FIFO
Problem 5 - FIFO
Problem 5 - FIFO
Problem 5 - Average
Problem 5 - Average
Problem 5 - Average
Problem with Loss Units
 The rules for loss units will
still be applied together with
rules of either FIFO or
Average Costing
Problem 7 - FIFO
Problem 7 - FIFO
Problem 7 - FIFO
Problem 7 - Average
Problem 7 - Average
Problem 7 - Average
THANK YOU!