1. Introduction and Objectives
When an organization carries opening Work-in-Progress (WIP) into a new period, it must choose how to blend or separate those opening costs from current-period expenditures. This lesson contrasts the two primary accounting structures used globally to manage this cost flow.
 
2. Methodological Differences
  • Weighted Average Method: Blends the costs in opening WIP with current-period costs to calculate a single average cost per equivalent unit. It treats opening WIP inventory and newly started production as a single pool of units.
  • First-In, First-Out (FIFO) Method: Keeps opening WIP separate from current-period production. It assumes that the work required to complete opening WIP is performed first, making current-period costs applicable only to units started during the current period. FIFO provides a clearer picture of current-period efficiency but requires more complex calculations.

3. Step-by-Step Production Report Framework
Both methods follow a standardized four-step reporting process to track and allocate costs:
  1. Track Physical Units: Reconcile incoming units with outgoing units (Opening WIP + Units Started = Units Completed + Ending WIP).
  2. Calculate EUP: Determine equivalent units for both materials and conversion costs.
  3. Compute Cost per EUP: Divide accumulated costs by the calculated EUP values.
  4. Allocate Total Costs: Assign calculated costs to completed units and ending WIP inventory.
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