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SIR, In FIFO approach we have cost in july:
Material = $24900
Labour+OH = $20075
Total cost = $44975Whereas if we value them we have total cost of:
WIP (opening) = $15200
Finished Goods this month = $34500
WIP (ending) = $5525
Total value = $55225Isn’t the total cost and total value should be same in FIFo approach just like in weighted average method? Should we not add WIP (opening) cost when calculating the cost of each item which will give the same amount (24900+20075+10250) = $55225?
Plz tell me this…
FIFO and weighted average will not give the same result.
With FIFO the costs this period are spread only over the work done in this period, whereas with weighted average the total of the amount already spent on the WIP brought forward plus the amount spent this period are spread over all of the units.
I work the the example in my free lectures and explain what is happening. (There is no point in using the notes without watching the lectures that go with them 🙂 )
I saw your lecture actually BUT i have this confusion.
In short, under weighted avg we have total cost of $55225 and total evaluation value to $55225 are equal because the total of the amount already spent on the WIP brought forward plus the amount spent this period are spread over all of the units. That’s why we have same figures.
Secondly, in FIFO the answer will not be equal between total cost of $44975 and total evaluation value of $55225. The difference between them is the cost of previous period (i.e. opening WIP of $10250) which we don’t account because they don’t belong to this period.
I thought that we need to have same figures in total cost and total value in FIFO method just like in weighted average (BUT we actually don’t)
Correct sir?
In FIFO, we have total cost of:
Material = $24900
Labour+OH = $20075
Total cost = $44975AND we have total value of:
WIP (opening) = $15200
Finished Goods this month = $34500
WIP (ending) = $5525
Total value = $55225Please tell me do we need to equal our total cost of $44975 and total value of $55225 or not?
I have seen that people add WIP (opening) of $10250 in the total cost of $44975 in order to equal them to our total value of $55225 which you did not do in your lecture like this:
WIP (opening) = $10250
Material = $24900
Labour+OH = $20075
Total cost = $55225Can we do this if it is not wrong to do?
I do not understand why you are asking this because I prepare the t-account in the lecture (and it is also printed in the lecture notes).
You are missing the WIP b/f of 10,250 on the debit side of the account, and I certainly do show it like that in my lecture and I explain why.
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