FIFO (Solution

Exhibit 4.22C)

FIFO (Solution

Exhibit 4.23) Difference Cost of units completed and transferred out

Work in progress, closing Total costs accounted for

€104,000 18,125

€122,125

€103,566 18,559

€122,125

+€434

−€434

The FIFO closing stock is higher than the weighted-average closing stock by €434. This is because FIFO assumes that all the lower-cost prior-period units in work in progress 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 higher-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.

Step 4: Summarise total costs to account for and assign these costs to units completed and units in closing work in progress using the FIFO method, Forming Department of Sligo Toys for April 2010 (in €).

Total

production

Direct materials Conversion costs costs

Cost per Cost per

Equivalent equivalent Total Equivalent equivalent Total units unit costs units unit costs (1) (2) (3)=(1)×(2) (4) (5) (6)=(4)×(5) (7)=(3)+(6)

Panel A:

Total costs to account for Work in progress, opening

(from Solution Exhibit 4.22B) 300 25.0000 7,500 0120 17.7083 2,125 9,625 Work done in current period only

(from Solution Exhibit 4.22B) 2,200 31.8182 70,000 2,005 21.1970 42,500 112,500

To account for 2,500 77,500 2,125 44,625 122,125

Panel B:

Assignment of costs

Completed and transferred out:

(2,000 physical units) Work in progress, opening

(300 physical units) 1,300 25,0000 7,500 120 17.7083 2,125 229,625 Work done in current period to

complete opening work in

progress^† 0^* 31.8182 0 ‡ 180^† 21.1970 3,815 3,815 Total from opening stock 300 7,500 300 5,940 213,440 Started and completed

(1,700 physical units) ^‡1,700^‡ 31.8182 54,091 ^‡1,700^‡ 21.1970 36,035 90,126 Total completed and transferred out

(2,000 physical units) ^§2,000^§ 61,591 ^§2,000^§ 41,975 103,566 Work in progress, closing

(500 physical units) ^§ 500^§ 31.8182 15,909 ^§ 125^§ 21.1970 2,650 18,559

Accounted for 2,500 77,500 2,125 44,625 122,125

* Opening work in progress is 100% complete as to direct materials, so zero equivalent units of direct materials need to be added to complete opening work in progress.

† Opening work in progress is 40% complete as to conversion costs, which equals 120 equivalent units of conversion costs. To complete the 300 physical units of opening work in progress, 180 (300 − 120) equivalent units of conversion costs need to be added.

‡ 2,000 total equivalent units completed and transferred out (Solution Exhibit 4.22A) minus 300 equivalent units completed and transferred from opening stock equals 1,700 equivalent units.

§ From Solution Exhibit 4.22A.

1 Solution Exhibit 4.24A calculates the equivalent units of work done in April 2010 in the Finishing Department for transferred-in costs, direct materials and conversion costs.

Solution Exhibit 4.24B calculates the cost per equivalent unit of opening work in progress and of work done in April 2010 in the Finishing Department for transferred-in costs, direct materials and conversion costs.

Solution Exhibit 4.24C summarises total Finishing Department costs for April 2010, and assigns these costs to units completed and transferred out and to units in closing work in progress using the weighted-average method.

2 Journal entries:

a Work in Progress – Finishing Department 104,000

Work in Progress – Forming Department 104,000

Cost of goods completed and transferred out during April from the Forming Department to the Finishing Department

b Finished Goods 168,552

Work in Progress – Finishing Department 168,552 Cost of goods completed and transferred out

during April from the Finishing Department to Finished Goods stock

Solution Exhibit 4.24A

Steps 1 and 2: Summarise output in physical units and calculate equivalent units, Finishing Department of Sligo Toys for April 2010.

(Step 1) Completed and transferred out

during current period 2,100 2,100 2,100 2,100

Work done in current period only 2,000 2,100 1,920

Step 3: Calculate equivalent unit costs under the weighted-average method, Finishing Department of Sligo Toys for April 2010.

Transferred- Equivalent unit costs of opening work in progress

Work in progress, opening (given)

Divide by equivalent units of opening work in progress (from Solution Exhibit 4.24A)

Cost per equivalent unit of opening work in progress

€ 17,750 Equivalent unit costs of work done in current

period only

Costs added in current period (given) Divide by equivalent units of work done in current period (from Solution Exhibit 4.24A) Cost per equivalent unit of work done in Current period only

Step 4: Summarise total costs to account for and assign these costs to units completed and units in closing work in progress using the weighted-average method, Finishing Department of Sligo Toys for April 2010 (in €).

Total

production

Transferred-in costs Direct materials Conversion costs costs Cost per Cost per Cost per

Equivalent equivalent Total Equivalent equivalent Total Equivalent equivalent Total

units unit costs units unit costs units unit costs (10)=

(1) (2) (3)=(1)×(2) (4) (5)(6)=(4)×(5) (7) (8) (9)=(7)×(8) (3)+(6)+(9) Panel A:

Total costs to account for:

Work in progress, opening

(from Solution Exhibit 4.24B) 500i 35.50^* 17,750 0 – 0 300 24.167 7,250 25,000 Work done in current period only

(from Solution Exhibit 4.24B) 2,000i 52.00^* 104,000 2,100 11 23,100 1,920 20.000 38,400 165,500 To account for 2,500i 48.70^* 121,750 2,100 ^† 11^† 23,100 2,220^‡ 20.563^‡ 45,650 190,500 Panel B:

Assignment of costs

Completed and transferred out:

(2,100 physical units) 400^§ 48.70^* 102,270 ^**2,100^§ 11 23,100 ^*§2,100^§ 20.563 43,182 168,552 Work in progress closing

(400 physical units) 2,100^§ 48.70^* 19,480 ^** 0^§ – 0 120^§ 20.563 2,468 21,948 Accounted for 2,500^§ 121,750 2,100 23,100 2,220 45,650 190,500

* Weighted-average cost per equivalent unit of transferred-in costs = Total transferred-in costs divided by total equivalent units of transferred-in costs = €121,750 ÷ 2,500 = €48.70.

† Weighted-average costs per equivalent unit of direct materials = Total direct materials costs divided by total equivalent units of direct materials = €23,100 ÷ 2,100 = €11.

‡ Weighted-average cost per equivalent unit of conversion costs = Total conversion costs divided by total equivalent units of conversion costs = €45,650 ÷ 2,220 = €20.563.

1 The equivalent units of work done in April 2010 in the Finishing Department for transferred-in costs, direct materials and conversion costs are exactly as in Solution Exhibit 4.24A. Solution Exhibit 4.25A calculates the cost per equivalent unit of opening work in progress and of work done in April 2010 in the Finishing Department for transferred-in costs, direct materials and conversion costs. Solution Exhibit 4.25B summarises total Finishing Department costs for April 2010, and assigns these costs to units completed and transferred out and to units in closing work in progress using the FIFO method.

Journal entries:

a Work in Progress – Finishing Department 103,566

Work in Progress – Forming Department 103,566

Cost of goods completed and transferred out during April from the Forming Department to the Finishing Department.

b Finished Goods 166,723

Work in Progress – Finishing Department 166,723 Cost of goods completed and transferred out

during April from the Forming Department to the Finishing Department

Solution Exhibit 4.25A

Step 3: Calculate equivalent unit costs under the FIFO method, Finishing Department of Sligo Toys for April 2010.

Transferred- Equivalent unit costs of opening work in progress

Work in progress, opening (given)

Divide by equivalent units of opening work in progress (from Solution Exhibit 4.24A)

Cost per equivalent unit of opening work in progress Equivalent unit costs of work done in current

period only

Costs added in current period (given)

Divide by equivalent units of work done in current period (from Solution Exhibit 4.24A)

Cost per equivalent unit of work done in current period only

period differ:

Transferred-in costs (weighted average) Direct materials

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 Cost of units completed and

transferred out

Work in progress, closing Total costs accounted for

€168,552

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 out (+€1,829) does not fully offset the difference in closing work-in-progress stock (−€1,165). This is because the FIFO and weighted-average methods result in different values for transferred-in costs with respect to both opening stock and costs transferred in during the period.