FIFO Process Costing: Equivalent Units & Cost Reconciliation | CMA

FIFO process costing explained with a complete example: calculate equivalent units for materials and conversion, cost per equivalent unit, ending work in process (WIP) and transferred-out costs. Compare FIFO with weighted average and check the production cost reconciliation. For cost and managerial accounting students, CMA candidates and CPA candidates reviewing process costing. WHAT MAKES FIFO DIFFERENT? FIFO separates work and costs from the current period from those carried in beginning WIP. Prior-period work is excluded from CURRENT-PERIOD equivalent units, and beginning costs are excluded from the current unit-cost rate. Those beginning costs are still carried into the cost of completed units; they are not discarded. FOLLOW THE SMITH COMPANY EXAMPLE Beginning WIP: 300 units, 40% complete for materials and 20% for conversion. Started in June: 6,000 units. Completed and transferred: 5,400 units. Ending WIP: 900 units, 60% complete for materials and 30% for conversion. Physical flow check: 300 + 6,000 = 5,400 + 900. Started and completed this period: 5,400 − 300 = 5,100 units. FIFO EQUIVALENT UNITS Materials: 300 × 60% remaining + 5,100 + 900 × 60% complete = 5,820. Conversion: 300 × 80% remaining + 5,100 + 900 × 30% complete = 5,610. Use the REMAINING percentage for beginning WIP and the COMPLETED percentage for ending WIP. Ending WIP alone contains 540 material and 270 conversion equivalent units—not 5,820 and 5,610. COST PER EQUIVALENT UNIT Current materials: $118,621 ÷ 5,820 ≈ $20.3816. Current conversion: $81,130 ÷ 5,610 ≈ $14.4617. Assign current costs to the work needed to complete beginning WIP, units started and completed, and ending WIP. Add beginning WIP's existing $10,039 cost to transferred-out production. ROUNDING NOTE FOR THE SLIDES The lecture rounds individual allocation components, showing ending WIP $14,911 and transferred-out cost $194,880, totaling $209,791. Available cost is $10,039 + $199,751 = $209,790. Retaining full precision until the final allocation gives approximately $14,910.72 ending WIP and $194,879.28 transferred out, reconciling to $209,790. Avoid rounding unit costs too early. FIFO VS. WEIGHTED AVERAGE For these facts, subtract prior-period equivalent units from the weighted-average totals: materials 5,940 − 120 = 5,820; conversion 5,670 − 60 = 5,610. FIFO is useful for analyzing current-period cost performance. Results can be similar with little beginning WIP, but small inventories do not guarantee identical results; zero ending WIP alone does not imply zero beginning WIP. CHAPTERS 00:00 FIFO process costing versus weighted average 00:48 Smith Company production data 01:31 Beginning WIP: work needed this period 03:20 Units started and completed 04:37 Ending WIP equivalent units 05:39 Visual explanation of materials and conversion 07:12 Isolate current-period work under FIFO 07:57 Shortcut from weighted-average equivalent units 09:50 Current-period cost per equivalent unit 11:29 Assign costs to ending WIP 12:21 Beginning WIP cost and cost to complete it 13:14 Cost of units started and completed 13:41 Total cost transferred out 13:56 Cost reconciliation and rounding 14:34 FIFO versus weighted average with low WIP 15:21 FIFO and current-period cost control 16:08 Practice and final review CONTINUE STUDYING Process Costing: Equivalent Units & FIFO:    • Process Costing: Equivalent Units, Weighte...   Cost Accounting Full Course:    • Cost Accounting Full Course | Complete Col...   More lectures and accounting practice: https://farhatlectures.com #ProcessCosting #FIFO #CMAExam