Discuss the assignment of costs to transferred-out inventories in both process costing methods

Answer 1

The assignment of costs in a process costing system first involves determining total production costs. These costs are then assigned to units completed and transferred out during the period and to the units in Work in Process Inventory at the end of the period. To assign costs, the cost per equivalent unit must be established using either the FIFO or weighted average method. The cost per EUP is then multiplied by the number of equivalent units in the component being costed. Transferred-out costs using the weighted average method are computed as the number of units transferred times the total price per equivalent unit. When using FIFO, transferred-out units are computed as follows: the costs in beginning WIP are added to the current period costs to complete the units which sums to the total cost of beginning WIP; the units started and completed are priced at current period costs; the total of the costs of beginning inventory and units started and completed are then transferred out.