FIFO vs. Weighted Average Method of Process Costing: Understanding the Difference in Ending Inventory Treatment

The primary difference between FIFO and Weighted Average methods of process costing has to do with the treatment of a. Ending inventory b. Number of units started C.Beginning inventory D.Direct labor

C.Beginning inventory

The primary difference between FIFO (First in First Out) and Weighted Average methods of process costing has to do with the treatment of a. Ending inventory.

FIFO method assumes that the first units produced are the first units sold or transferred out, and the ending inventory consists of the most recently produced units. On the other hand, the Weighted Average method averages the cost of all units produced in a period and applies that average cost to both units sold or transferred out and units remaining in inventory.

Therefore, the main difference between the two methods is in the calculation of the cost of ending inventory. The FIFO method assigns the most recent cost to ending inventory, while the Weighted Average method calculates the average cost of all units produced and applies it to ending inventory.

Both methods adequately address the number of units started, beginning inventory, and direct labor as these costs are usually incurred at the beginning of the production process and are included in the cost of goods produced.

In conclusion, the primary difference between FIFO and Weighted Average methods of process costing has to do with how they treat the cost of ending inventory.

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