ECONOMICS

Detailed explanation-1: -The FIFO costing method assumes that units in beginning inventory are the first units transferred.

Detailed explanation-2: -FIFO stands for “First-In, First-Out”. It is a method used for cost flow assumption purposes in the cost of goods sold calculation. The FIFO method assumes that the oldest products in a company’s inventory have been sold first. The costs paid for those oldest products are the ones used in the calculation.

Detailed explanation-3: -The first-in-first-out (FIFO) method keeps beginning inventory costs separate from current period costs and assumes that beginning inventory units are completed and transferred out before the units started during the current period are completed and transferred out.

Detailed explanation-4: -Since we are using FIFO method, we first include the entire beginning WIP in the cost of units transferred out and then include units started/added during the period.

Detailed explanation-5: -Equivalent units for a process costing system using the FIFO method would be equal to: a. units completed during the period, plus equivalent units in the ending work in process inventory.