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Dear Sir,
I am writing regarding the calculation of the Finished Goods costs when there is an opening inventory and the firm is using FIFO.
FG costs = cost of finishing the opening WIP + cost of units started and finished.
My question is: do we add the costs carry forward from the opening WIP as well?
I seem to recall in your lecture you saying we should only include costs for the current period (vs. WAC where we include all costs). Am I right?
I did an exercise on my study bank where they calculate the cost of finished goods as: cost of finishing the opening WIP + cost of units started and finished + costs carry forward from opening WIP.
I am confused.
Would you please remind me the rule?
Thanks in advance for your help,
AnneDear Anne,
Let me show you the formula to find the started and finished units by which you may get an idea to your question’s answer:Units
Output transferred to process account 2 xxx
+Opening WIP/ inventory xx
___
Equivalent units xxx
-Closing WIP/ inventory xx
___
Output to finishing goods xxx
– Opening WIP/ inventory xx
___
Started and finshed/ completed answer xxxAccording to the formula, the opening WIP should be added to the output of process account that is been transferred from one process account to another process account, by which you may get the equivalent units but the closing WIP should be subtracted by which you will get the output to finished goods. But to get the started and finished units you will have to subtract the opening WIP units. Where after which you can multiply the started and finished units to the cost per equivalent unit subtracting the cost per unit of production overheads that is at the step 3 of statement of evaluation which will be the opening WIP where the formula will be (cost b/d +incurred costs in the month or the year =cost of issues -started and finished cost = output to finished goods -closing WIP =statement of evaluation or the answer of the current process account’s total cost)
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