Process Costing using FIFO or Weighted Average - Which is Better for Performance Evaluation?

Authors

  • Rajiv V. Shah Professor, T A Pai Management Institute, Manipal

DOI:

https://doi.org/10.33516/maj.v55i2.63-65p

Keywords:

No Keywords.

Abstract

Process costing is used to derive costs of the products that are identical, mass produced and are amenable to broad averaging of costs. This is opposed to job costing, where each unit or service is unique from the other and uses different quantities of resources. Process costing absorbs costs using mainly two methods-FIFO and Weighted Average. These methods throw up different value of cost for the cost objects, depending on the cost variations across periods. This article tries to decipher the reasons for the differences in the levels of cost absorption and tries to link it to performance evaluation or measurement of the process or department. It finds that FIFO is inherently fairer and just from a performance measurement perspective.

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Published

2020-02-29

How to Cite

Shah, R. V. (2020). Process Costing using FIFO or Weighted Average - Which is Better for Performance Evaluation?. The Management Accountant Journal, 55(2), 63–65. https://doi.org/10.33516/maj.v55i2.63-65p

Issue

Section

Performance Evaluation

References

Datar, S. M., & Rajan, M. V. (2018). Horngren's Cost Accounting - A Managerial Emphasis (16th ed.). Indian Subcontinent Adaptation: Pearson India Education Pvt. Ltd.

Drury, C. (2012). Management and Cost Accounting (8th ed.). Cengage Learning India Pvt. Ltd.

Sekhar, R. C., & Rajagopalan, A. V. (2013). Management Accounting (1st ed.). Oxford University Press.

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