Understanding FIFO Method in Cost Accounting: Advantages and Differences Compared to Weighted Average Method

The FIFO method provides a major advantage over the weighted average method in that a. The calculation of equivalent units is less complex under the FIFO method. b. The FIFO method treats units in the beginning inventory as if they were started and completed during the current period. The FIFO method provides measurements of work done during the current period. The weighted-average method ignores units in the beginning and ending work in process inventories

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The correct answer is b. The FIFO method treats units in the beginning inventory as if they were started and completed during the current period. This is a major advantage over the weighted average method because it allows for more accurate measurements of work done during the current period.

Under the FIFO method, the first units in the beginning inventory are the first ones to be completed and transferred out. This means that the costs associated with these units are assigned to the units that are completed and transferred out first. This provides a more accurate reflection of the actual cost of production during the current period.

In contrast, the weighted average method assigns the average cost of all units in the work in process inventory to the units that are completed and transferred out. This method ignores the fact that some units may have been in the work in process inventory for a longer period of time and therefore have a lower cost. This can result in inaccurate cost measurements and make it more difficult to manage production costs.

In addition, the calculation of equivalent units is not necessarily less complex under the FIFO method. Both methods require the calculation of equivalent units, although the FIFO method may be slightly simpler due to the fact that it only considers the first-in units for completion. However, this is not a significant advantage compared to the more accurate measurement of work done that the FIFO method provides.

Finally, the weighted average method does not completely ignore units in the beginning and ending work in process inventories. While it does use the average cost of units in the work in process inventory, it still takes into account the existence of these units and assigns a cost to them.

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