Process Costing (Weighted Average Method)

Process Costing (Weighted Average Method)- the costs are averaged out and
evenly applied to both units transferred out and units in closing work in process.
Unlike FIFO method, which assumes costs introduced first into a department are
transferred out first, weighted average method does not assume any specific
order.
the average Method, unlike the Fifo method of costing, does not follow may
assumed flow of quantity. Rather, it assumes that quantities processed and
completed in a period absorb the same amount of materials, labor, and
manufacturin overhead costs regardless of origin. The units completed during the
period therefore are charged with the same average cost

 Comparison between Weighted Average Method

he main difference between the FIFO and weighted average method
is in the treatment of beginning work-in-process or unfinished goods
inventory. The weighted average method includes this inventory in
computing process costs, while the FIFO method keeps it separate.

Conventional wisdom says that the weighted-average method is

simpler than the FIFO method. I suppose this is said because Amount
to complete beginning WIP need not be calculated for the weighted-
average method.

better to go with the method that produces a more accurate Cost per
equivalent unit. Rather than one that blurs the lines between what
was done last month and what was done this month. Particularly if
you are in a super-competitive environment where accurate costs are
needed to price appropriately.
 COMPARISON OF AVERAGE AND FIFO COSTING METHODS
The following table summarizes the differences in the preparation of cost of production report
under the average and FIFO costing methods:

Average Method FIFO Method

Overview
Cost of production report
1. Qualities
2. Equivalent production
3. Cost to be accounted for
4. Cost accounted for
No distinction is made between
completed units from beginning
work in process inventory and
completed units from the
current period.
Same procedure for
All units completed during the
period are 100% complete,
regardless of the stage of
completion of the beginning
work in process inventory.
Cost of beginning work in
process inventory is added to
the current cost.
Cost of completed units is
determined by multiplying
equivalent units by one unit
cost.
Units in the beginning work in
process inventory are reported
separately from units started in
the current period.
Both methods
Beginning work in process
inventory is included in the
equivalent production only to
the extent of the work done to
complete this units during the
current period.
Cost of beginning work in
process inventory are not
included in the computation of
unit costs.
Cost of completed units is
assumed to come first from
beginning work in process
inventory then form current
production (there are two
equivalent unit cost – beginning
work in process inventory and
current production.