Chapter 11 - Cost of Production Report: FIFO Costing

According to Pedro P. Guerrero, the use of FIFO method of accounting for work in process inventories
has the following advantages:

a. 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.¹
b. 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.¹
c. Major changes in costs can be monitored easily for control purposes.¹

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. 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. The units transferred out of the department during the month are composed of the beginning
work in process and the units started and finished in the current month.¹

Comprehensive Illustration

Cutting Department
The cost and production data of the Cutting Department, the first department of Star Paper Company,
for February 200X, the second month of operations are presented below:

Cost Data
The Work In Process – Cutting Department account on February 28, 200X, has a balance of P351,294
before transfer out, composed of the following costs:
Beginning Work in Process:
Materials P 22,560
Labor 13,536
Overhead 28,952
Balance, January 31 P 65,048
Current Month Costs
Materials P 69,944
Labor 82,416
Overhead 133,886
Total February costs 286,246
Balance, February 28 P 351,294

¹Pedro P. Guerrero, Cost Accounting – Principles and Procedural Applications, 2018 Edition
Production Data
The monthly production report showing the production data of the Cutting Department for February is
presented below:

Cutting Department
Monthly Production Report – FIFO Method
February 200X
Quantity:
Work in Process – Beginning 3,760
Started in Process 11,160
Transferred Out to Next Department:
From Work in Process – beginning 3,760
Started and Completed – Current Month 5,840
Total Transferred Out to Next Department 9,600
Work in Process – Ending 5,320
Stage of Completion of Work in Process
Beginning Ending
Materials 100% 100%
Labor 40% 40%
Overhead 55% 55%

Equivalent Units of Production

Under the FIFO method, the costs of the units in the beginning WIP 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. The computation of the equivalent
production is presented below:

Cutting Department
Equivalent Production Computations – FIFO
Month of February 200X
Materials
Transferred Out to Next Department
Completion of Beginning WIP (3,760 x 0%) 0
Started and Completed 5,840
Work in Process – Ending ( 5,320 x 100% ) 5,320
Equivalent Units for Materials 11,160
Labor
Transferred Out to Next Department
Completion of Beginning WIP ( 3,760 x 60% ) 2,256
Started and Completed 5,840
Work in Process – Ending ( 5,320 x 40% ) 2,128
Equivalent Units for Labor 10,224
Overhead
Transferred Out to Next Department
Completion of Beginning WIP (3,760 x 45%) 1,692
Started and Completed 5,840
Work in Process – Ending ( 5,320 x 55%) 2,926
Equivalent Units for Overhead 10,458
Cost of Production Report – Cutting Department
The completed cost of production report under the FIFO is presented below.

Cutting Department
Cost of Production Report
Month of February 200X

Quantity Schedule Units

a. Quantity to Be Accounted For:
Work in Process – Beginning 3,760
Started – Current Month 11,160
Total to Be Accounted For 14,920
b. Quantity Accounted For:
Transferred Out to Next Department
From Beginning WIP 3,760
Started and Completed 5,840 9,600
Work in Process – Ending 5,320
Total Accounted For 14,920

Equivalent Unit
Cost Schedule Total Cost Units Costs
c. Costs to be Accounted For:
Work in Process – Beginning P 65,048
Costs Incurred in Current Month
Costs Incurred in this Department
Materials P 69,944 / 11,160 = P 6.26738
Labor 82,416 / 10,224 = 8.06103
Overhead 133,886 / 10,458 = 12.80226
Total Costs in this Dept. P286,246 P 27.13067
Total Costs to be Accounted For P351,294
d. Cost Accounted For:
Transferred Out to Next Dept.
From Beginning WIP inventory P 65,048
Current Month Costs:
Materials 0 = 0 x P6.26738
Labor 18,186 = 2,256 x 8.06103
Overhead 21,661 = 1,692 x 12.80226
Costs of Completed Beg. WIP P104,895 / 3,760 = P27.897.61
Started and Completed 158,443 = 5,840 x 27.13067
Total Costs Transferred Out P263,338 / 9,600 = 27.43104
Work in Process – Ending
Costs in this Department:
Materials P 33,343 = 5,320 x 6.26738
Labor 17,154 = 2,128 x 8.06103
Overhead 37,459 = 2,926 x 12.80226
Total 87,956
Total Costs Accounted For P351,294
Assembly Department
The following cost and production data for the Assembly Department, the second department
of Star Paper Company for February 200X will be used to illustrate the FIFO method as it applies
to units moving from department to department.

Cost Data
The balance of the Work in Process – Assembly Department of P471,609 on February 28 before
transfer out to the next department is composed of the following costs:

Beginning Work in Process:

Costs Transferred In from Prior Dept. P 28,130
Cost in Current Department:
Materials 1,455
Labor 5,529
Overhead 4,656
Balance, January 31 P39,770
Current Month
Costs Transferred In from Prior Dept. P263,338
Cost in Current Department:
Materials 23,128
Labor 70,638
Overhead 74,735 431,839
Balance, February 28 P471,609

Production Data

Assembly Department
Monthly Production Report – FIFO Method
February 200X

Quantity:
Work in Process – Beginning 970
Started in Process – Current Month 9,600
Transferred Out to Next Department:
From Work in Process – Beginning 970
Started and Completed 8,500
Total Transferred Out to Next Department 9,470
Work in Process – Ending 1,100
Stage of Completion
Beginning Ending
Transferred In Cost 100% 100%
Materials 60% 55%
Labor 60% 55%
Overhead 60% 55%
Equivalent Units of Production
The computations of the equivalent units of production under the FIFO method are shown
below:

Assembly Department
Equivalent Production Computations – FIFO
Month of February 200X

Transferred In Cost From Prior Department:

Transferred Out to Next Department:
Completion of Beginning WIP (970 x 0%) 0
Started and Completed 8,500
Work in Process – Ending (1,100 x 100%) 1,100
Equivalent Units for Transferred In Costs 9,600
Materials
Transferred Out to Next Department:
Completion of Beginning WIP (970 x 40%) 388
Started and Completed 8,500
Work in Process – Ending (1,100 x 55%) 605
Equivalent Units for Materials 9,493
Labor
Transferred Out to Next Department
Completion of Beginning WIP ( 970 x 40% ) 388
Started and Completed 8,500
Work in Process – Ending ( 1,100 x 55% ) 605
Equivalent Units for Labor 9,493
Overhead
Transferred Out to Next Department
Completion of Beginning WIP ( 970 x 40% ) 388
Started and Completed 8,500
Work in Process – Ending ( 1,100 x 55% ) 605
Equivalent Units for Overhead 9,493

Cost of Production Report

The cost of production report under the FIFO method for the month of February for the
Assembly Department is shown below.
 Assembly Department
Cost of Production Report – FIFO
Month of February 200X

Quantity Schedule Units

a. Quantity to Be Accounted For:
Work in Process – Beginning 970
Started/Transferred In 9,600
Total to Be accounted For 10,570
b. Quantity Accounted For:
Transferred Out to Next Dept.
From Beginning WIP 970
Started and Completed 8,500 9,470
Work In Process – Ending 1,100
Total Accounted For 10,570

Equivalent Unit
Cost Schedule Total Cost Units Costs
c. Costs to Be Accounted For:
Work in Process – Beginning P39,770
Costs Incurred This Month
Transferred In Cost from Prior Dept. 263,338 / 9,600 = P27.43104
Costs Added this Dept,
Materials 23,128 / 9,493 = P 2.43632
Labor 70,638 / 9,493 = 7.44106
Overhead 74,735 / 9,493 = 7.87264
Total Costs Added 168,501 P 17.75002
Total Costs this Month 431,839 P 45.18106
Total Costs to Be Accounted for P471,609
d. Costs Accounted For:
Transferred Out to Next Dept.
From Beginning WIP P 39,770
Costs Added this Month:
Materials 945 = 388 x 2.43632
Labor 2,887 = 388 x 7.44106
Overhead 3,055 = 388 x 7.87264
Total Costs of Completed BWIP P 46,657 / 970 = P 48.10
Started and Completed 384,039 = 8,500 x 45.18106
Total Costs of Units Transferred Out P430.696 / 9,470 = 45.48004
Work in Process – Ending
Transferred In Costs fr. Prior Dept. 30,174 = 1,100 x 27.43104
Costs Incurred this Dept.
Materials 1,474 = 605 x 2.43632
Labor 4,502 = 605 x 7.44106
Overhead 4,763 = 605 x 7.87264
Total Work in Process 40,913
Total Costs Accounted For P471,609
Packaging Department
The following are the cost data, monthly production report, and equivalent production
computations for the month of February for the Packaging Department.

Cost Data

Beginning Work in Process

Costs Transferred In From Prior Department P133,280
Costs in this Department:
Materials 0
Labor 2,230
Overhead 1,020
Balance, January 31 P136,530
Costs this Month
Costs Transferred in From Prior Department P430,699
Costs in this Department
Materials 2,560
Labor 20,480
Overhead 16,885
Total Costs this Month 470,624
Balance, February 28 P607,154

Monthly Production Report – FIFO

Quantity
Work in Process – Beginning 2,720
Started in Production/Transferred In 9,470
Transferred Out to Finished Goods
From Beginning Work in Process 2,720
Started and Completed 3,650 6,370
Work in Process – Ending 5,820
Stage of Completion
Beginning Ending
Transferred In Cost 100% 100%
Materials 0% 0%
Labor 20% 20%
Overhead 15% 15%
Equivalent Production Computations – FIFO

Transferred In Costs From Prior Department

Transferred Out to Finished Goods:
Completion of Beginning Work in Process ( 2,720 x 0%) 0
Started and Completed 3,650
Work in Process – Ending ( 5,820 s 100% ) 5,820
Equivalent Units for Transferred in Costs from Prior Department 9,470
Materials
Transferred Out to Finished Goods:
Completion of Beginning Work in Process ( 2,720 x 100% ) 2,720
Started and Completed 3,650
Work in Process – Ending ( 5,829 x 0%) 0
Equivalent Units for Materials 6,370
Labor
Transferred Out to Finished Goods:
Completion of Beginning Work in Process (2,720 x 80% ) 2,176
Started and Completed 3,650
Work in Process – Ending ( 5,820 x 20% ) 1,164
Equivalent Units for Labor 6,990
Overhead
Transferred Out to Finished Goods:
Completion of Beginning Work in Process ( 2,720 x 85% ) 2,312
Started and Completed 3,650
Work in Process – Ending ( 5,820 x 15% ) 873
Equivalent Units for Overhead 6,835

Cost of Production Report

The cost of production report is shown on the next page.
 Packaging Department
Cost of Production Report – FIFO
Month of February 200X

Quantity Schedule Units

a. Quantity to be Accounted For:
Work in Process – Beginning 2,720
Started / Transferred In 9,470
Total to Be Accounted For 12,190
b. Quantity Accounted For:
Transferred Out to Finished Goods
From Beginning WIP 2,720
Started and Completed 3,650 6,370
Work in Process – Ending 5,820
Total Accounted For 12,190

Equivalent Unit
Cost Schedule Total Cost Units Costs
c. Costs to Be Accounted For:
Work in Process – Beginning P 136,530
Costs Incurred this Month
Transferred In Costs from Prior Dept. P430,699 / 9,470 = P 45.48035
Costs Added this Dept.
Materials 2,560 / 6,370 = 0.40188
Labor 20,480 / 6,990 = 2.92990
Overhead 16,885 / 6,835 = 2.47037
Total Costs Added P 39,925 P 5.80215
Total Costs this Month P 470,625 P 51.28250
Total Costs to be Accounted For P 607,154
d. Cost Accounted For:
Transferred Out to Finished Goods
From Beginning Inventory P 136,530
Costs Added this Month
Materials 1,093 = 2,720 x P 0.40188
Labor 6,375 = 2,176 x 2.92990
Overhead 5,712 = 2,312 x 2.47037
Total Costs of Completed BWIP P 149,710 / 2,720 = P 55.04044
Started and completed 187,181 = 3,650 x 51.28250
Total Costs of Units Transferred Out P336,891 / 6,370 = 52.88712
Work in Process – Ending
Transferred In Costs fr. Prior Dept. P264,696 = 5,820 x 45.48035
Costs Incurred this Dept.
Materials 0 = 0 x P0.40188
Labor 3,410 = 1,164 x 2.92990
Overhead 2,157 = 873 x 2.47037
Total WIP P270,263
Total Costs Accounted For P 607,154
SOURCE AND REFERENCE:
Pedro P. Guerrero, Cost Accounting – Principles and Procedural Applications, 2018 Edition