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Horngren'S Financial And Managerial Accounting
Found in: Page 1006

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Short Answer

When might it be beneficial for a company to use the FIFO method? When is the weighted-average method more practical?

The FIFO method is beneficial when the cost changes significantly, and the weighted average method is beneficial when the cost is not changing significantly.

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Step by Step Solution

Step-by-Step Solution:Step 1: Inventory Valuation Method

Inventory valuation can be done by First in, first out, last-in, first-out, or the weighted average method. Each method gives a different inventory valuation. Generally, most companies use the FIFO method.

Step 2: The situation in which the FIFO method is beneficial

The FIFO method is more useful in companies working in an industry where cost changes significantly.

Step 3: The situation in which the weighted average method is beneficial

The weighted average method is beneficial when the business operates in an industry that does not experience significant cost change.

Most popular questions for Business-studies Textbooks

Cheerful Colors manufactures crayons in a three-step process: mixing, molding, and packaging. The Mixing Department combines the direct materials of paraffin wax and pigments. The heated mixture is pumped to the Molding Department, where it is poured into molds. After the molds cool, the crayons are removed from the molds and are transferred to the Packaging Department, where paper wrappers are added and the crayons are boxed.

In the Mixing Department, the direct materials are added at the beginning of the

process and the conversion costs are incurred evenly throughout the process. Work in process of the Mixing Department on March 1, 2018, consisted of 800 batches of crayons that were 10% of the way through the production process. The beginning balance in Work-in-Process Inventory—Mixing was $32,800, which consisted of $14,000 in direct materials costs and $18,800 in conversion costs. During March, 5,200 batches were started in production. The Mixing Department transferred 3,000 batches to the Molding Department in March, and 3,000 were still in process on March 31. This ending inventory was 80% of the way through the mixing process. Cheerful Colors uses FIFO process costing.

At March 31, before recording the transfer of costs from the Mixing Department

to the Molding Department, the Cheerful Colors general ledger included the following account:

Work-in-process inventory – Mixing

Balance, March 1


Direct materials


Direct labor


Manufacturing overhead



1. Prepare a production cost report for the Mixing Department for March. Round

equivalent unit of production costs to four decimal places. Round all other costs to the nearest whole dollar.

2. Journalize all transactions affecting the Mixing Department during March, including the entries that have already been posted. Assume labor costs are accrued and not yet paid.


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