1. Process Costing
ACCTG 404
ACCTG 404 Huddart

2. Costing Systems Job Order Costing Process Costing Each job is unique
Product costs are easy to trace to a specific job/product
Product is mass-produced
Impossible to trace product costs to a specific can

3. Process Costing: Basic Operational and Cost Concepts1
A process system is characterized by a large number of homogeneous products passing through a series of processes
Each process is responsible for one or more operations that bring a product one step closer to completion
A process is a series of activities that are linked to perform a specific objective
In each process, materials labor and overhead inputs may be needed and, upon completion of that process, are transferred to another process until complete, when they are transferred to finished goods.

4. Process Costing: Reflects Actual Manufacturing Flows
An Operational Process System:
Antihistamine Manufacturing
Blending
Encapsulating
Bottling
Selecting
Sifting
Measuring
Mixing
Loading
Filling
Sealing
Drying
Loading
Counting
Capping
Packing

5. Process Costing: Reflects Actual Manufacturing Flows
manufacturing costs
Direct Materials
Direct Labor
Applied Overhead
Job 205
Jobs 206
Jobs 207
Finished Goods
Job Order Costing:
manufacturing costs
Direct Materials
Direct Labor
Applied Overhead
Blending Dept.
Encapsulating Dept.
Bottling Dept.
Finished Goods
Process Costing:
ACCTG Lansford - Spring 2014

6. Similarities Between Job-Order and Process Costing
Both systems assign material, labor, and overhead costs to products and they provide a mechanism for computing unit product costs.
Both systems use the same manufacturing accounts, including Manufacturing Overhead, Raw Materials, Work in Process, and Finished Goods.
The flow of costs through the manufacturing accounts is basically the same in both systems.
Job-order and process costing are similar in that they both deal with assigning materials, labor, and overhead to products as a way to calculate the unit product cost.
Both systems use Raw Materials Inventory, Work in Process Inventory, and Finished Goods Inventory.
The flow of costs is similar, but not exactly the same, in the two systems.

7. Differences Between Job-Order and Process Costing
Is used when a single product is produced on a continuing basis or for a long period of time. Job-order costing is used when many different jobs having different production requirements are worked on each period.
Systems accumulate costs by department. Job-order costing systems accumulated costs by individual jobs.
Systems compute unit costs by department. Job-order costing systems compute unit costs by job on the job cost sheet.
Process costing is best suited for the production of a single product that is continuously produced for a long period of time. Recall the mixing and bottling of Coca-Cola from Chapter Three. Job-order costing is best suited when jobs are produced as discrete projects. For example, building a house.
Process costing accumulates costs by department, while job-order costing accumulates costs by individual jobs.
Process costing uses a fundamental document called a department production report, while job-order costing uses the job cost sheet.
In process costing unit cost is computed by department, while in job-order systems unit cost is computed by job.
While there are similarities between the two systems, there are also significant differences.

8. Processing Departments
Definition: Any unit in an organization where materials, labor, or overhead are added to the product.
The activities performed in a processing department are performed uniformly on all units of production. Furthermore, the output of a processing department must be homogeneous. Products in a process costing environment
typically flow in a sequence from one department to another.
A processing department is any unit in an organization where materials, labor, or overhead are added to the product. The output from a processing department is homogeneous, that is, they all appear the same. Products in a process costing environment typically flow in a sequence from one department to another.

9. Example of Accounting with Process Costing
For purposes of this example, assume there are two processing departments: Departments A and B. We will use T-accounts.
Let’s look at the flow of process costs through the t-accounts and related journal entries for a manufacturing company that has two departments – Department A and Department B.

10. Process Cost Flows: The Flow of Raw Materials
Work in Process Department A
Raw Materials
Direct Materials
Direct Materials
Work in Process Department B
Direct materials can be requisitioned for use in both Department A and Department B. These direct materials are likely to be different in nature. Direct material costs are debited to the appropriate departmental Work in Process account depending upon where the materials were added to the production process. The Raw Materials Inventory account is credited for the corresponding amounts.

11. Process Cost Flows: The Flow of Labor Costs
Salaries and Wages Payable
Work in Process Department A
Direct Materials
Direct Labor
Direct Labor
Work in Process Department B
Direct labor is transferred from the Salaries and Wages Payable account into the work in process account of Departments A and B depending upon where the individual employee worked. Direct labor costs are debited to the appropriate departmental Work in Process account depending upon where the labor was added to the production process. Salaries and Wages Payable is credited for the corresponding amounts.
Direct Materials

12. Process Cost Flows: The Flow of Manufacturing Overhead Costs
Work in Process Department A
Direct Materials
Manufacturing Overhead
Direct Labor
Actual Overhead
Overhead Applied to Work in Process
Applied Overhead
Work in Process Department B
Manufacturing overhead is applied to each processing department based on a predetermined rate for each department. The predetermined rate does not have to be based on the same cost driver for each processing department. Manufacturing overhead costs are debited to the respective departmental Work in Process accounts. Manufacturing overhead is credited by the corresponding amounts.
Direct Materials
Direct Labor
Applied Overhead

13. Process Cost Flows: Transfers from WIP-Dept. A to WIP-Dept. B
Work in Process Department A
Work in Process Department B
Direct Materials
Transferred to Dept. B
Transferred from Dept. A
Direct Materials
Direct Labor
Direct Labor
Applied Overhead
Applied Overhead
The cost of units complete as to processing in Department A are transferred into Department B for additional work. Department B has incurred additional costs to work on units that were in process at the beginning of the period. The transferred-in costs from Department A are added to the manufacturing costs incurred in Department B.
Department A
Department B

14. Process Cost Flows: Transfers from WIP-Dept. B to Finished Goods
Work in Process Department B
Finished Goods
Direct Materials
Cost of Goods Manufactured
Cost of Goods Manufactured
Direct Labor
Applied Overhead
Transferred from Dept. A
Here we see the transfer of completed goods from Work in Process – Department B into Finished Goods Inventory. The costs transferred represent the cost of good manufactured.

15. Process Cost Flows: Transfers from Finished Goods to COGS
Work in Process Department B
Finished Goods
Direct Materials
Cost of Goods Manufactured
Cost of Goods Manufactured
Cost of Goods Sold
Direct Labor
Applied Overhead
Transferred from Dept. A
Once we sell finished goods, we debit Cost of Goods Sold and credit Finished Goods Inventory.
Cost of Goods Sold
Cost of Goods Sold

16. Process Costing
Process costing is the averaging technique to assign costs to the units produced
Process costing is complicated by work-in-process inventory (and “spoilage”)
Unit Cost =
Production Costs
Production Quantity

17. # of physical units × % of completion = Equivalent Units
Two units that are 50% complete have required the same inputs and effort as one unit that is 100% complete. So these two physical units are one equivalent unit.
# of physical units × % of completion = Equivalent Units

18. ACCTG 404 - Lansford - Spring 2014
Equivalent Units
Number of same or similar units that could have been produced given the amount of work actually performed on both complete and partially completed units.
Includes units:
started last period and finished this period
started and finished this period
started this period and not finished
ACCTG Lansford - Spring 2014

19. Quick Check
For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
Read the information carefully and determine how many equivalent units of production were manufactured during the period.

20. Quick Check
For the current period, Jones started 15,000 units and completed 10,000 units, leaving 5,000 units in process 30 percent complete. How many equivalent units of production did Jones have for the period?
a. 10,000
b. 11,500
c. 13,500
d. 15,000
10,000 units + (5,000 units × 0.30) = 11,500 equivalent units
The correct answer is 11,500 equivalent units. How did you do?

21. Process Costing Methods
Weighted Average Method
combine
beginning work- in-process
current period production
FIFO Method
separate
beginning work- in-process
current period production
ACCTG Lansford - Spring 2014

22. Equivalent Units: Beginning Must Equal Ending Balances
Beginning Inventory in Equivalent Units + Equivalent Units of current output = Ending inventory in Equivalent Units Units transferred out
ACCTG Lansford - Spring 2014

23. Six Step in Process Costing
We’ll start with an example using the weighted-average method.
The weighted-average method . . .
Makes no distinction between work done in prior or current periods.
Blends together units and costs from prior and current periods.
Determines equivalent units of production for a department by adding together the number of units transferred out plus the equivalent units in ending Work in Process Inventory.
ACCTG Lansford - Spring 2014

24. Step 1: Units to Account For
Beginning WIP ,000
Started ,000
Units to account for 535,000
ACCTG Lansford - Spring 2014

25. Step 2: Units Accounted For
Beginning WIP ,000
Started ,000
Units to account for 535,000
must be
equal
Finished and transferred 523,000
Ending WIP 12,000
Units accounted for 535,000
ACCTG Lansford - Spring 2014

26. Weighted Average Method
Step 3: Compute Equivalent Units
DM CC
Beginning WIP inventory 25, ,000
Started and completed 498, ,000
Ending WIP inventory 12, ,600* Equivalent units 535, ,600
*(ending units × % complete)
12,000 × 80% = 9,600
ACCTG Lansford - Spring 2014

27. Weighted Average Method
Step 4: Costs to Account For
DM CC Total
Beginning WIP $ 42, $ 17,152 $ 59,802 Current costs $433, $339,690 $ 773,190
To account for $476, $356, $832,992
ACCTG Lansford - Spring 2014

28. Weighted Average Method
Step 5: Cost per Equivalent Unit
DM CC Total
Beginning WIP $ 42, $ 17,152 $ 59,802 Current costs , , ,190
To account for $476, $356, $832,992
Divide by EU , ,600
Cost per EUP $.89 $.67 $1.56
ACCTG Lansford - Spring 2014

29. Weighted Average Method
Step 6: Assign Costs to Inventories
Transferred (523,000 × $1.56) $815,880
Ending WIP Inventory
Direct Materials
(12,000 × $.89) $10,680
Conversion
(9,600 × $.67) , ,112
Cost accounted for $832,992*
*must agree with costs to account for
Transferred Out
Ending WIP
ACCTG Lansford - Spring 2014

30. ACCTG 404 - Lansford - Spring 2014
Process Costing: FIFO
Under the FIFO costing method, the equivalent units and manufacturing costs in beginning work in process are excluded from the current period unit cost calculation. Thus, FIFO recognizes that the work and costs carried over from the prior period legitimately belong to that prior period.
ACCTG Lansford - Spring 2014

31. Process Costing Methods
Weighted Average Beginning WIP 100% Started and finished 100% Ending WIP % completed FIFO Beginning WIP % completed Started and finished 100% Ending WIP % completed
the difference
ACCTG Lansford - Spring 2014

32. Process Costing: FIFO Method
Let’s re-do the same problem using the FIFO method.
Note that the biggest difference between FIFO and weighted-average is the way equivalent units is computed.
ACCTG Lansford - Spring 2014

33. Process Costing: FIFO Method
FIFO emphasizes current period costs and production Steps 1 and 2 are the same (so no need to re-do here) Step 3: Compute Equivalent Units
DM CC
Beginning WIP ,000*
Started and completed 498, ,000
Ending WIP Inventory 12, ,600 Equivalent units 510, ,600
* (beginning units × % completed in current period)
25,000 × (1 – 40%) = 15,000
ACCTG Lansford - Spring 2014

34. Process Costing – FIFO Method
Step 4 is the nearly same – except only use current costs
Step 5: Cost per Equivalent Unit
DM CC Total
Current costs $433, $339, ,190
Divide by EU , ,600
Cost per EUP $.85 $.65 $1.50
ACCTG Lansford - Spring 2014

35. Step 6: Assign Costs to Inventories - FIFO
Transferred
Beginning WIP Inventory $59,802
Cost to complete
Conversion (15,000 × $.65) 9, $69,552
Started and completed
(498,000 × $1.50) ,000
Ending WIP
Direct Materials
(12,000 × $.85) $10,200
Conversion
(9,600 × $.65) , ,440
Cost accounted for $832,992*
*must agree with costs to account for
Transferred
Out
Ending
WIP
ACCTG Lansford - Spring 2014

36. Process Costing Comparison
Weighted Average EU DM 535,000 EU CC 532,600 Cost per unit DM $ .89 Cost per unit CC .67 Total $1.56 Transferred Out $815,880 Ending WIP 17,112 Total $832,992
FIFO EU DM 510,000 EU CC 522,600 Cost per unit DM $ .85 Cost per unit CC .65 Total $1.50 Transferred Out $816,552 Ending WIP 16,440 Total $832,992
ACCTG Lansford - Spring 2014

37. ACCTG 404 - Lansford - Spring 2014
Practice Problem
Consider the following data for the Assembly Division of Fenton Watches, Inc.: The Assembly Division uses the weighted-average method of process costing.
Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.
ACCTG Lansford - Spring 2014

38. STEP 3: Compute Output in Equivalent Units
Under the weighted-average method, equivalent units are calculated as the equivalent units of work done to date. The equivalent units of work effort performed for the Assembly Division for direct materials and conversion costs are:
STEPS 1&2: Summarize Output in Physical Units
STEP 3: Compute Output in Equivalent Units
ACCTG Lansford - Spring 2014

39. Practice Problem STEP 4: Summarize Total Costs to Account For
Now summarize total costs to account for, calculate cost per equivalent unit for direct materials and conversion costs, and assign total costs to units completed (and transferred out) and to units in ending work in process.
STEP 4: Summarize Total Costs to Account For
STEP 5: Compute Cost per Equivalent Unit
STEP 6: Assign Total Costs to Units Completed and to Units in Ending Work in Process
ACCTG Lansford - Spring 2014

40. ACCTG 404 - Lansford - Spring 2014
Practice Problem
FIFO method. Suppose the Assembly Division at Fenton Watches, Inc., uses the FIFO method of process costing instead of the weighted-average method. Compute equivalent units for direct materials and conversion costs. Show physical units in the first column of your schedule.
STEPS 1&2: Summarize Output in Physical Units
STEP 3: Compute Equivalent Units done in current period
ACCTG Lansford - Spring 2014

41. Process Costing - FIFO STEP 4: Summarize Total Costs to Account For
DM CC Total
Current costs $3,220,000 $1,392, $4,612,000
Divide by EUP
Cost per EUP $7,000 $3,000 $10,000
STEP 5: Compute Cost per Equivalent Unit
ACCTG Lansford - Spring 2014

42. ACCTG 404 - Lansford - Spring 2014
Process Costing - FIFO
STEP 6: Assign Total Costs to Units Completed and to Units in Ending Work in Process
Transferred
Beginning WIP Inventory $584,400
Cost to complete
DM (8 × $7,000) ,000
Conversion (48 × $3,000) , $ 784,400
Started and completed
(380 × $10,000) ,800,000
Ending WIP
Direct Materials
(72 × $7,000) $504,000
Conversion
(36 × $3,000) , ,000
Cost accounted for $5,196,400*
*must agree with costs to account for
Transferred
Out
Ending
WIP
ACCTG Lansford - Spring 2014

43. Would process costing likely be used by this watcher maker?
ACCTG Lansford - Spring 2014

44. Multiple Departments & Spoilage Costs add some additional complexities
ACCTG Lansford - Spring 2014

45. ACCTG 404 - Lansford - Spring 2014
Spoilage
Normal spoilage – is uncontrollable and expected in day to day operations. Part of product costs. Abnormal spoilage – exceeds expected losses and is charged as a period expense.
ACCTG Lansford - Spring 2014

46. Equivalent Units: Beginning Must Equal Ending Balances
Beginning Inventory in Equivalent units + Equivalent units of current output = Ending inventory in equivalent units Units transferred out Normal spoilage + Abnormal spoilage
ACCTG Lansford - Spring 2014

47. Process Costing with Multiple Departments
As a product passes from one department to another, the accumulated cost passes from department to department Transferred-in costs, or prior department costs, are costs of work performed in earlier departments that are transferred into the present department These costs are treated like an additional cost element
ACCTG Lansford - Spring 2014

48. Spoilage in Process Costing
There are two options to account for normal spoilage:
Count the number of spoiled units, prepare a separate equivalent unit computation with the cost per unit of the spoiled goods, and then allocate the cost of spoilage to the good units produced
Omit the spoiled units in computing the equivalent units of production; the spoilage cost is thus included as part of total manufacturing costs
We will focus on the first option. Let’s walk through a problem that includes spoilage
ACCTG Lansford - Spring 2014

49. Weighted-Average Method
Production Quality Information
Steps 1 & 2:
Step 3:
Flow of Costs
Calculate Equiv. Units
Physical Units
Completion Percentage
Direct Materials
Conversion Costs
Input
Work-in-process, May 1
2,000
Direct materials
100%
Conversion
75%
Number started
8,000
Total to account for
10,000
Output
Number completed
7,000
Normal spoilage (10%)
700
Abnormal spoilage
300
Work-in-process, May 31
80%
1,600
Total accounted for
Total equivalent units
9,600
Weighted-Average Method
ACCTG Lansford - Spring 2014

50. Weighted-Average Method Unit Cost Determination
Step 4: Determine Total Costs
Direct Materials
Conversion Costs
Total
Work-in-process, May 1
$100,000
$80,000
$180,000
Costs added during period
300,000
405,000
705,000
Total costs to account for
$400,000
$485,000
$885,000
Step 5: Compute Costs per Equivalent Unit
Divide by number of equivalent units
10,000
9,600
Equivalent unit costs
$40.00
$50.521
$90.521
ACCTG Lansford - Spring 2014

51. Weighted-Average Method
Cost Assignment
Step 6: Assign Total Manufacturing Costs
Completed & Tran. Out
Ending WIP
Total
Goods Completed and Transferred out
[(Goods units 7,000 +
Normal spoilage 700) x $90.521]
$697,011
Abnormal Spoilage (300 x $90.521)
27,156
Work-in-process, May 31
Direct Materials
(2,000 x $40.000)
$80,000
80,000
Conversion
(1,600 x $50.521)
$80,833
80,833
Total Costs accounted for
$160,833
$885,000
ACCTG Lansford - Spring 2014

52. ACCTG 404 - Lansford - Spring 2014

53. ACCTG 404 - Lansford - Spring 2014

54. ACCTG 404 - Lansford - Spring 2014
Prepare the Production Cost Report for May, using the weighted-average method.
Compute the equivalent units of DM and CC
Compute equivalent unit cost per unit
Compute the cost summary of
Finished goods (good production and normal spoilage)
Abnormal spoilage
Ending WIP
ACCTG Lansford - Spring 2014

55. ACCTG 404 - Lansford - Spring 2014
Whole
Equivalent Units
QUANTITY RECAP: PHYSICAL UNITS
Units
Materials
Conversion
Beginning WIP
5,000
100%
25%
Units started
26,000
TOTAL IN Process
31,000
Units Finished or Transferred-out
25,000
Normal spoilage
750
Abnormal spoilage
Ending WIP
4,500
80%
TOTAL OUT Process
EQUIVALENT UNITS: WEIGHTED-AVERAGE
Materials
31,000
(= eq units in Beg WIP + units started & completed
+ eq spoiled units + eq units in End WIP)
Conversion
30,100
COST ADDED
Materials
Conversion
Total
Beginning WIP
$45,600
$8,125
$53,725
Current Costs
$228,400
$45,500
$273,900
$274,000
$53,625
$327,625
Weighted-average
Cost per EU
$8.839
$1.782
$10.620
ACCTG Lansford - Spring 2014

56. ACCTG 404 - Lansford - Spring 2014
Cost Summary: Weighted-Average Method:
Finished Goods
25,000
units
Good production $10.620)
$265,507
Normal spoilage (750 × $10.620)
$7,965
$273,472
Abnormal Spoilage
750
(750 x $10.62)
Ending WIP
4,500
Materials (4,500 × $8.839)
$39,774
Conversion (4,500 x 0.8 × $1.782)
$6,414
$46,188
Total Cost Accounted For
$327,625
ACCTG Lansford - Spring 2014

57. ACCTG 404 - Lansford - Spring 2014
On March 31, Morgan Company recorded the following information in the Assembly Department’s Work in Process account: Assume that the BB and EB WIP units are 70% and 80% complete for both materials and conversion, respectively. There is no spoilage. Using FIFO, what is the total cost assigned to ending work in process?
Units DM Cost CC Cost
Beginning balance ,000 $60,000 $25,000
Costs incurred this period ,000 $229,852 $57,745
Completed and transferred to Packaging 90,000
Ending balance ,000
ACCTG Lansford - Spring 2014

58. Solution 1. Physical Units to Account For 14,000 + 80,000 = 94,000
2. Physical Units Accounted For
90, ,000 = 94,000
ACCTG Lansford - Spring 2014

59. 3. Equivalent Units of Production
Solution
3. Equivalent Units of Production
DM CC
BB WIP 14,000 × (1-.7) 14,000 × (1-.7)
S&C (90,000-14,000) (90,000-14,000)
EB WIP 4,000× ,000×.80
83, ,400
ACCTG Lansford - Spring 2014

60. 5. Cost per Equivalent Unit of Production
Solution
4. Costs to Account For
Costs incurred this period: DM $229,852
CC $ 57,745
5. Cost per Equivalent Unit of Production
DM EUP = $229,852 ÷ 83,400 = $2.76
CC EUP = $57,745 ÷ 83,400 = $0.69
ACCTG Lansford - Spring 2014

61. ACCTG 404 - Lansford - Spring 2014
Solution
6. Costs to Assignment to Ending WIP:
(3,200 × $2.76) + (3,200 × $0.69) = $11,040
ACCTG Lansford - Spring 2014

62. What If There Are Two Different Types of Direct Materials Used
Sometimes a manufacturing process requires more than one stage or type of direct material
In these situations, you may have one type of direct material added at a different time than the other direct materials
To account for this, simply account for each type of direct material separately
An example follows:
ACCTG Lansford - Spring 2014

63. Superior Brands, Inc., manufactures a medium-quality rubber cement product in two departments.
Cost and production data for the first department for June:
Work-in-process inventory, June 1
Conversion
40%
complete
15,000
units
Work-in-process inventory, June 30
65%
25,000
Started into production
80,000
Completed and transferred out ?
Costs:
Direct materials
$72,500.00
$12,937.50
Costs added in June
Material A
$260,000.00
Material B
$403,750.00
$461,437.50
ACCTG Lansford - Spring 2014

64. ACCTG 404 - Lansford - Spring 2014
Material A is added at the beginning of work in the first department. Material B is also added in the first department but not until units of product are 50% complete with regard to conversion activity. Conversion costs are incurred uniformly during the process. There is no spoilage. The company uses FIFO.
Stage of completion of beginning WIP inventory with respect to material A =
100%
Stage of completion of ending WIP inventory with respect to material A =
Stage of processing at which material B is added =
50%
1. Calculate equivalent units produced with respect to material A, material B, and conversion costs.
2. Calculate the cost per equivalent unit for material A, material B, and conversion costs.
3. Calculate the cost of the units transferred out during the period.
4. Calculate the cost of the ending WIP inventory
ACCTG Lansford - Spring 2014

65. ACCTG 404 - Lansford - Spring 2014
Quantity Schedule:
Input
Work-in-process inventory, 6/1
15,000
Units Started
80,000
Total units to account for
95,000
Output
Units completed
70,000
Work-in-process inventory, 6/30
25,000
Total units account for
ACCTG Lansford - Spring 2014

66. ACCTG 404 - Lansford - Spring 2014
Equivalent Units-FIFO Method
Material A
Units completed
70,000
Work-in-process inventory, 6/30
100%
25,000
Total
95,000
Less: EU in WIP inventory,6/1
(15,000)
Total equivalent units
80,000
Material B 0%
Conversion
65%
16,250
86,250
40%
(6,000)
80,250
Costs per equivalent unit:
Costs
Material A
Material B
Conversion
Costs incurred in June
$260,000
$403,750
$461,438
Divided by FIFO eq units
80,000
95,000
80,250
FIFO cost per equivalent unit
$3.25
$4.25
$5.75
ACCTG Lansford - Spring 2014

67. ACCTG 404 - Lansford - Spring 2014
Accounting for Total Costs:
Cost of units from beginning WIP inventory:
WIP inventory, June 1
$85,438
Cost to finish Beginning WIP:
Material B
$63,750
Conversion
$51,750
$115,500
Total cost of units from beginning WIP inventory
$200,938
Cost of units started and completed
$728,750
Cost of units transferred out
$929,688
Cost of ending WIP inventory
Material A
$81,250
$106,250
$93,438
Total cost of ending WIP Inventory
$280,938
ACCTG Lansford - Spring 2014

68. A Comparison of Process Costing Methods
In a lean production environment, FIFO and weighted-average methods yield similar unit costs.
When considering cost control, FIFO is superior to weighted-average because it does not mix costs of the current period with costs of the prior period.
In most situations, the weighted-average and FIFO methods will produce very similar unit costs, particularly in a lean production environment. From a cost control standpoint, the FIFO method is superior to the weighted-average method because it does not mix costs of the current period with costs of the prior period.