Summary of Principles and Procedures

 The cost of the ending work in process inventory carried over from one period to the next
period should be included when unit costs in the current period are determined
 Two usual methods to account for the costs of the beginning work in process inventory are
used: FIFO and Average methods
 Under the FIFO method, the cost partially completed units carried over are computed separately
from the units started in the current period.
 Under the Average Cost method, all cost of each category are combined and average unit cost is
computed.
 The material costs in beginning work in process inventory are combined with the costs of
materials added in the current month. The total is divided by equivalent units of production of
materials to compute the average units cost for materials.
 Labor, overhead and transferred in costs from prior department costs averages are computed in
the same manner as the computation for materials
 A combined costs of production report instead of a separate report for each department may be
prepared.