TAILIEUCHUNG - Lecture Advanced management accounting - Chapter 13

In this chapter, you will learn: Financial measures in investment centres, return on investments, residual income, measuring profit and invested capital, measures of shareholder value, reward systems, theories of motivation, performance-related reward systems. | Lecture 13: Equivalent units continued Operation Costing Operation cost is a hybrid of job-order and process costing because it possesses attributes of both approaches Operation costing is commonly used when batches of many different products pass through the same processing department. 2 4-2 2 Operation costing is similar to job-order costing. For example, a shoe manufacturer may charge each batch of shoes for its own specific material costs (., shoes made with expensive leather would be charged accordingly, as would shoes made with inexpensive synthetic materials). It is also similar to process costing, the shoe manufacturer may accumulate the labor and overhead costs by department and assign the same conversion cost per unit to each shoe regardless of the shoe style FIFO vs. Weighted-Average Method The FIFO method (generally considered more accurate that the weighted-average method) differs from the weighted-average method in two ways: The computation of equivalent units. The way in which the costs of beginning inventory are treated in the cost reconciliation report. 3 4-3 3 FIFO is considered a more accurate measure of cost than weighted-average. It is important to be careful with your handling of beginning work in process inventory when using the FIFO method. While the calculations in weighted-average and FIFO appear to be similar, there are significant differences between the two methods. We will be using our previous example material to illustrate the FIFO method. Equivalent Units – FIFO Method Let’s revisit the Double Diamond Skis example. Assume the following activity is reported in Shaping and Milling Department for May: 4 4-4 4 Recall this basic information from the Double Diamond Skis. We completed the calculation of equivalent units for the company using the weighted-average method. Now, we will use the same information to determine equivalent units under FIFO. Equivalent Units – FIFO Method Step 1: Determine equivalent units needed to complete .

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