Download ACCA F2 Study Text Management Accounting PDF

TitleACCA F2 Study Text Management Accounting
Tags
LanguageEnglish
File Size2.7 MB
Total Pages463
Table of Contents
                            Study Text_Full page advert_Layout 1
01_F2_Prelims_2008
02_F2_Syllabus_2008
03_F2_Formula sheet_2008
04_F2_Chap 01_2008
05_F2_Chap 02_2008
06_F2_Chap 03_2008
07_F2_Chap 04_2008
08_F2_Chap 05_2008
09_F2_Chap 06_2008
09_F2_Chap 07_2008
10_F2_Chap 08_2008
11_F2_Chap 09_2008
12_F2_Chap 10_2008
13_F2_Chap 11_2008
14_F2_Chap 12_2008
15_F2_Chap 13_2008
16_F2_Chap 14_2008
17_F2_Chap 15_2008
18_F2_Appendix spread sheets_2008
19_F2_Solutions to exercises_2008
20_F2_Questions_2008
21_F2_Answers_2008
22_F2_Index_2008
                        
Document Text Contents
Page 1

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ACCA
F2 Study Text
Management Accounting

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Page 231

Chapter 10: Process costing

© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 225



Equivalent units: FIFO method

Assumption with the FIFO method of process costing

Equivalent units of work done in the current period

The three-stage calculation

FIFO method: summary

6 Equivalent units: FIFO method

6.1 Assumption with the FIFO method of process costing

With the weighted average cost method of costing, it is assumed that all units of
output in a period have the same cost per unit.

With the first-in, first-out (FIFO) method of process costing, it is assumed that the
opening units of work-in-process at the beginning of the month will be the first
units completed. The cost of these units is their value at the beginning of the period
plus the cost to complete them in the current period.

6.2 Equivalent units of work done in the current period

It is necessary to calculate the number of equivalent units of work done in the
period. This consists of:

The equivalent units of direct materials and conversion costs required to
complete the opening WIP. These are the first units completed in the period.

The equivalent units of finished output in the period that was started as well as
finished in the period. These have one equivalent unit of direct materials and
one equivalent unit of conversion costs. The total number of these units is:

- the total finished output in the period
- minus the quantity of opening WIP (which are completed first)

The equivalent units of closing WIP (calculated in the normal way).


A cost per equivalent unit, for direct materials and conversion costs, is now
calculated as:

period in the done work of units equivalent ofNumber
value) WIPopening (exclude periodcurrent in the process theof Costs




The equivalent units in the current period to complete the opening WIP are
calculated using the following percentage value:

100%

minus the degree of completion at the beginning of the period.

Page 232

Paper F2: Management Accounting

226 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

For example, suppose that opening WIP is 1,000 units which is 100% complete for
direct materials and 70% complete for conversion costs. The number of equivalent
units in the current period to complete the opening WIP is 0 for direct materials (=
1,000 (100 – 100)%) and 300 for conversion costs (= 1,000 (100 – 70)%).

6.3 The three-stage calculation

The three-stage calculation with the FIFO method is similar to the calculation
method previously described, with the exception that in the statement of evaluation,
the cost of finished output consists of:

the finished cost of opening WIP (completed first) plus

the cost of finished output started as well as finished in the period.


The finished cost of opening WIP is the sum of:

the costs in the opening WIP value at the start of the period

the costs in the current period to complete these units.


Study the following example carefully.





Example: FIFO method of process costing

From the following information relating to Process 1 in March, calculate the cost of
finished output in the month and the value of the closing inventory, using the FIFO
cost valuation method:

Opening inventory on 1 March: 3,000 units

100% complete for direct materials

30% complete for conversion costs

Cost $13,570 (= direct materials $12,600 + conversion costs $970)


Costs incurred during March:

Direct materials: 7,000 units input, cost $28,000

Conversion costs: $17,430


Completed units in the month: 8,000 units


Closing inventory: 2,000 units 100% complete for direct materials and 60% complete
for conversion costs.

Page 462

Paper F2: Management Accounting

456 Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides © EWP

Page 463

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F2 Study Text - Management Accounting
A well-written and focused text, which will prepare you for the examination and which does not
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