Answer
Three inventory methods commonly associated with process costing are:
1. Weighted Average
2. First-In, First-Out (FIFO)
3. Standard Costing
Work Step by Step
1. Weighted Average: In the weighted average method, the cost of equivalent units is determined by averaging the costs of both beginning work in process and costs incurred during the current period. This method simplifies cost allocation by blending all costs together.
2. First-In, First-Out (FIFO: The FIFO method assumes that the costs of the first units worked on (beginning work in process) are the first to be allocated to units completed. This method matches current costs with current production and keeps track of the chronological order of costs.
3. Standard Costing: Standard costing uses predetermined cost standards for each process, and the costs are allocated based on these standards. It is a more structured approach that measures actual performance against predetermined standards, making it suitable for companies with well-defined production processes.
