Process costing

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Annu (Querist)

12 April 2014 Hello,Could you please explain me the difference between FIFO and Weighted Average Method. Also how cost per unit is calculated while using Weighted Average Method in Process Costing?

Rupesh Jain

Rupesh Jain (Expert)

12 April 2014 under fifo method you can take value of last purchase

and under weighted average method
unit no X cost per unit= product / total unit

Annu

Annu (Querist)

12 April 2014 That means, we do not include purchases or units introduced in weighted average method as we do in FIFO while calculating cost per unit??

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

13 April 2014 You need to calculate the units introduced in the process costing while follow FIFO or weighted average method. otherwise you cannot arrive the correct cost

Annu

Annu (Querist)

13 April 2014 @ramesh krishnan: Ok sir then,whats the difference between them?

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)

14 April 2014 Here there are two types of valuation coming out. your query about the input material valuation then

the value of input need to be taken under FIFO as explained by Mr.Rupesh, value of purchase of latest price of inputs. under weigheted average, total value of materials need to be divided by the input units purchased.

If your question is about the valuation of output units coming out from process, then calculation as follows

Need to add the following
1. Value of Materials ( Either FIFO or weighted average as you like)
2. Labour
3. Other direct & indirect overheads related to that particular process

after adding those and divided by the number of units output which you got. ( subject to abnormal loss)

Annu

Annu (Querist)

16 April 2014 thank you rupesh sir and ramesh sir.

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