How do I calculate equivalent units under FIFO and weighted average method in process costing?

Question

Process costing is killing me in CA Inter Costing. When there is opening WIP, I don't understand why FIFO and weighted average give different equivalent units. Can someone show it with one example and explain how to remember it?

GradeHunt_Team · Answer

The only difference is how each method treats the work already done on opening WIP in the last period.

- Weighted average: opening WIP is merged with this period's work. Every unit completed counts as a full unit, no matter when the work on it was done.
- FIFO: this period gets credit only for work done this period. For opening WIP, you count only the part left to finish.

Example:
Opening WIP 1,000 units (materials 100%, conversion 40%)
Units introduced 9,000
Closing WIP 2,000 units (materials 100%, conversion 50%)
No process loss. Completed = 1,000 + 9,000 - 2,000 = 8,000 units.

Weighted average:
Materials = 8,000 + 2,000 = 10,000
Conversion = 8,000 + (2,000 x 50%) = 9,000

FIFO:
Opening WIP completed: materials 0, conversion 1,000 x 60% = 600
Started and finished this period: 8,000 - 1,000 = 7,000 (materials 7,000, conversion 7,000)
Closing WIP: materials 2,000, conversion 1,000
Materials = 0 + 7,000 + 2,000 = 9,000
Conversion = 600 + 7,000 + 1,000 = 8,600

Check: the gap between the two methods equals the work done on opening WIP last period. Materials 10,000 - 9,000 = 1,000 (1,000 x 100%). Conversion 9,000 - 8,600 = 400 (1,000 x 40%). If your gap doesn't match, recheck the table.

Cost per equivalent unit:
- Weighted average: (cost in opening WIP + cost added this period) / weighted average equivalent units.
- FIFO: cost added this period only / FIFO equivalent units. The opening WIP cost is added in full to the units transferred out.

Memory line: FIFO asks "what did we do this month?", weighted average asks "what do we have in total?"

How do I calculate equivalent units under FIFO and weighted average method in process costing?

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