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CA Intermediate · Cost and Management Accounting · Process & Operation Costing

Which statement about equivalent production under the FIFO method is correct?

Under FIFO, equivalent units are the work needed to complete opening WIP, plus units started and completed during the period, plus equivalent units in closing WIP. Opening WIP cost is kept separate and is not averaged with current costs.

  1. AOpening WIP units are treated as fully completed in the current period for all cost elements
  2. BEquivalent units equal units completed from opening WIP only for the work needed to finish them, plus units started and completed, plus equivalent closing WIPCorrect
  3. COpening WIP cost is merged with current period cost before computing a single average rate
  4. DClosing WIP is ignored because it is carried forward

Explanation

Under FIFO, opening WIP is completed first and only the work done this period on it is counted. Then units started and finished and equivalent closing WIP are added. Option C describes the weighted average method.

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