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Your manager is concerned that costs are being misappropriated due to large balances in ending work...

Your manager is concerned that costs are being misappropriated due to large balances in ending work in process inventories while currently using the FIFO Method for accounting for beginning work in process inventories. Using examples from your own experience or from the book, explain to the manager which of the methods of process costing you believe should be used and why. Ellaborate as much as possible

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Answer #1

Process costing may involve two methods -

FIFO

Weighted average cost method

The company is already using the FIFO method for accounting of inventory under which cost are misappropriated into closing WIP.

To solve such issue the comapny can use the weighted average method under which cost is calculated by weightrd average and then evenly distributed to the unit transferred to other department and the ending work in process.  

Therefore the company should use the weighted average method of process costing.

Example suppose company purchased goods lying stock 20000 units at 5 $ each. Weighted average cost calculated per unit is 3 $ per unit.

Closing work in process

FIFO = 20000*5

= 100000 $

Weighted average cost = 20000 * 3

= 60000 $

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