Cost of Production Report Fifo

COST OF PRODUCTION
REPORT: FIFO COSTING

Instructor: DEAN H
Course: BSA-1
In Chapter 11, the average cost method of accounting for the costs of
work in process inventories were discussed and illustrated. In this
chapter, the first in, first out (FIFO) costing method will be discussed
using the same data of Star Paper Company in Chapter 11.
The use of the FIFO method of accounting for work in process inventories
has the following advantages:
 The unit costs are more accurate because they relate more directly to
the units in the beginning inventory and the units started and
completed during the period.
 The unit costs reflect current conditions more clearly, because the cost
of completed units that were in process at the beginning of the
period and the cost of units started during the period are computed
separately.
 Major changes in costs can be monitored easily for control purposes.
High work in process inventories and highly volatile coats indicate that
use of the FIFO method would be advantageous.
Applying the FIFO Cost Method- Star
Paper Company
 Under the FIFO method, the costs of the beginning work in
process inventory are kept separate and assigned only to
the units in the beginning work in process;
 Costs incurred during the current month are considered to
be used first to complete the beginning work in process
inventory and are added to the beginning costs balance.
 Units that were in the beginning work in process inventory
are presented separately from the units that are started
and completed in the current month in Section (d) Costs
Accounted For on the cost of production report.
 The units transferred out of the department during the
month are composed of first the beginning work in process
and the units started and finished in the current month.
Comprehensive Illustration
o To illustrate the applications of the FIFO
costing method, the examples from Chapter
11 will be refigured. The journal entries will
not be shown, because only the peso amounts
will change the costing method changes.
Cutting Department
The cost and production The Work in Process -

data of the Cutting Cutting Department
Department, the first account on February 28,
department of Star Paper 2018, has a balance of
Company, for February P351,294 before
2018, the second month transfer out, composed
of operations as discussed of the following costs:
in Chapter 11 are
presented below:
Cutting Department- Cost Data
Cutting Department- Production Data
Equivalent units of production
Under the FIFO method the costs of the units in the

beginning work in process inventory should be
separated from the costs of the new units started in
the current period. The equivalent production is
computed so that the final figure relates only to the
work done in the current month.
Cutting Department- Equivalent Units
of Production
of Production
 Note that the percentages are the opposite of the ones
given on the monthly production report for beginning work
in process. The figures on the production report are the
percentage of work done last month. The percentages used
on the above computation are the percentage of work done
this month.
The following should be noted on the above computations of the

equivalent units of production for February 2018:
 The purpose of the computation is to determine the

equivalent units of production for each cost element, using
only the work done in the current period.
of Production
 Next the units that were started and completed (100% produced)
in the current month of February are added to the beginning work
in process equivalent units of production.
 Last, the units in ending work in process are multiplied by their

stage of completion at the end of the current month of February as
given.
 To determine the equivalent units of production in the current

period under the FIFO method, the units' worth of each element to
finish the beginning work in process is computed first by multiplying
the number of units in beginning work in process by the percentage
of work left uncompleted by the end of the last period.
Cost of Production Report- Cutting
Department
Quantity Schedule
Under the FIFO method, the Quantity Schedule of the
cost of production report is very similar to the one used with
the average cost method. The second part - (b) Quantity
Accounted For has been modified to show the source of the
units transferred out.
Specifically, on the Transferred Out to Next
Department subsection, units transferred out are now
identified as coming from beginning inventory or from new
production. The rest of the Quantity Schedule is the same as
when the average cost method is used.
Department
Cost Schedule
Section (c)- Costs to Be Accounted For:
 The beginning work in process inventory under Costs to Be Accounted is
presented in one total amount of P65,048.
 The title of the subsection Costs Incurred in Current Month reflects continued
emphasis on current production and related costs. There is no Transferred In
Costs from Prior Department because Cutting is the first department.
 The total cost figures for each cost element under Costs Incurred in Current
Department represent the current month's costs only. Each cost category is
divided by the related equivalent production units to obtain the unit cost for
the month. The total unit cost, P2713 (rounded), is the sum of the costs of the
categories added in February and does not contain any costs relating to the
beginning work in process inventory on February 1.
 The Total Costs to Be Accounted For is the sum of the cost of the Beginning
Inventory of Work in Process and the Total Current Month Costs.
Department
Cost Schedule
Section (d) - Costs Accounted For
 In (d) Costs Accounted For, the Transferred Out to Next
Department subsection is presented in detail to facilitate the

separation of costs relating to the beginning work in process
inventory from the units started and finished in the current month.
 No materials were added in the current month because all units
were 100 percent complete as to materials at the start of the

month.
 The cost of the labor added during the month(P18,186) is
computed by multiplying the equivalent units of production for
labor (2,256) by the related unit cost (P8.06103) as computed in
the previous section.
Department
Cost Schedule
 A similar computation is made to compute the amount of overhead
added to the beginning work in process inventory during February
(1,692 x P12.80226).
 The Total Cost of Completed Units From Beginning Work in Process
(prior period costs plus current period costs) amounts to P104,895.
This total divided by 3,760 units gives a unit cost of P27.89761.
Thus the FIFO method can yield a separate unit cost for the units in
the beginning work in process inventory.
 The units started and completed in February (5,840) are multiplied
by the total unit costs applicable to new production (P27.13067) to
yield the total cost of units started and finished in the current month,
P158,443.
Department
Cost Schedule
 The Total Cost of Units Transferred Out, P263,338, is divided by the
total number of units transferred out, 9,600, to obtain an average unit

cost of P27.43104. These are recorded in the cost of production report
of the next department as Transferred In From Prior Department in the
costs to Be Accounted For section of the Cost Schedule.
 The presentation of the ending work in process inventory is essentially
the same as that used with the average cost method. The total of each
cost category is determined by multiplying the equivalent production
units by the current unit costs for each category.
 The amount labeled Total Costs Accounted for, P351,294, is the sum of
the total costs transferred out to the next department (P263,338) and
the total cost of the ending work in process inventory (P87,956)
Comparison of Result- First Department
A detailed comparison of the average cost method and the FIFO method
for the Cutting Department of Star Paper Company shows the followings:
1. Under the FIFO method the unit cost of the completed units coming
from the beginning inventory, P27.90 (rounded), is different from the
unit cost of new production started and finished in the current month
P27 13. The difference of P0.77 is insignificant.
2. The difference of P0.23 between the P27.20 unit cost of units
transferred out computed under the average cost method (Illustration
11. 3) and the unit cost of P27.43 computed under the FIFO method
(II. lustration 12-3) is also insignificant.
3. After computing the Total Costs of Units Transferred Out, the FIFO
method reverts to an average cost for Costs Transferred in from Prior
Department to make the accounting easier for the next department,
Assembly Department- Cost Data
Assembly Department- Production Data
Equivalent Units of Production-
Assembly Department
Graphs/Charts 2
Project
Item 1
Item 2
Item 3
Item 4
Conclusion
 Add your conclusions here.
Questions/Discussions
 Question One
 Discussion
 Discussion
 Question Two
 Discussion
 Questions Three
 Discussion

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COST OF PRODUCTION

REPORT: FIFO COSTING

The cost and production The Work in Process -

Under the FIFO method the costs of the units in the

The following should be noted on the above computations of the

 The purpose of the computation is to determine the

 Last, the units in ending work in process are multiplied by their

 To determine the equivalent units of production in the current

Department subsection is presented in detail to facilitate the

were 100 percent complete as to materials at the start of the

total number of units transferred out, 9,600, to obtain an average unit

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