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Problem 16

# Assuming beginning work in process is zero, the equivalent units of production computed using FIF0 versus weighted average will have the following relationship: 1\. FIF0 equivalent units will be greater than weighted-average equivalent units. 2\. FIFO equivalent units will be less than weighted-average equivalent units. 3\. Weighted-average equivalent units are always greater than FIF0 equivalent units. 4\. Weighted-average equivalent units will be equal to FIF0 equivalent units.

Expert verified
2. FIFO equivalent units will be less than weighted-average equivalent units.
See the step by step solution

## Step 1: Understanding FIFO and Weighted Average Methods

First, let us understand the two methods used for computing equivalent units of production: FIFO and the weighted average method. 1. FIFO (First In, First Out) Method: This method assumes that the oldest units in the beginning work in process are completed and transferred out first, before the newer units. It calculates equivalent units for work completed in the current period only, excluding the work done in previous periods for the beginning work in process. 2. Weighted Average Method: This method combines the beginning work in process with the work done in the current period and calculates the equivalent units based on the total work done. The units are averaged out, and the cost is distributed uniformly across all equivalent units.

## Step 2: Comparison of FIFO and Weighted Average Equivalent Units

Now we compare the equivalent units of production for the two methods: FIFO: - Equivalent units are based on work completed in the current period only. - Excludes work done in previous periods for the beginning work in process. Weighted Average: - Equivalent units are based on the total work done, combining the beginning work in process with the work completed in the current period. - The cost and work are distributed uniformly across all equivalent units.

## Step 3: Choosing the Correct Statement

With this understanding of the two methods, we can now evaluate the four statements: 1. FIFO equivalent units will be greater than weighted-average equivalent units. 2. FIFO equivalent units will be less than weighted-average equivalent units. 3. Weighted-average equivalent units are always greater than FIFO equivalent units. 4. Weighted-average equivalent units will be equal to FIFO equivalent units. Since the FIFO method only considers the work done in the current period and excludes the beginning work in process, the equivalent units for this method will typically be less than the weighted-average equivalent units, which considers the total work done. Therefore, the correct statement is: 2. FIFO equivalent units will be less than weighted-average equivalent units.

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