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The equivalent units of production for a department using the FIFO process costing method is equal to the number of units completed plus the equivalent units in the ending inventory leads the equivalent units in the beginning inventory True False
Expert Answer
I am assuming question is
Equivalent Production unit under FIFO = Number of units completed + equivalent unit in the ending inventory – equivalent unit in beginning inventory.
Answer:
FIFO method of costing states the concept of First In and First Out. That is inventory we had first will be used first. The other two commonly used methods are LIFO (Last In First Out) and Weighted Average (Average price).
For example, we purchased 100 units of material with Re. 1 and then 50 units of material will Rs. 1.5. Under Fifo method, if we use 50 units of material; that will be considered to be used from 1st purhase of Re. 1. Thus, cost of material used will be 50 units*Re.1 = Rs. 50. Likewise cost of closing stock will be:
50 units @ Re. 1 = Rs.50
50 units @ Rs. 1.5 = Rs. 75
Thus, closing stock = Rs. 50+ Rs. 75 = Rs.125.
As, we can see the units of poduction or closing inventory remains the same irrespective of whichever costing method we use. Just the Price vary. So, in the current scenario the units of production will not depend on method of costing. However, the price will. So, the answer is True.
